MALAKOFF CORPORA TION BERHAD energising Futur

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2 RE: energising our Future Poised to embark on its strategic transformation, Malakoff stands on the verge of pulsating re-emergence from its next transitional journey. Being the leading independent power and water producing entity, its power generation plant stations in Lumut, Prai and Tanjung Bin depicts the potential to optimise its available resources, key to its determined quest and defining goals of Re-energising our Future. This commitment has taken Malakoff, driven by its people performance to reach the highest pinnacle of accomplishments regionally and globally, by remaining a force in the industry. Powering its business direction on efficiency and effectiveness, its cohesive partnerships and synergies provide its competitive and innovative edge to Restrategise, as it Restructures on Resurgence, with the Resolve for Results.

3 GOAL To be a premier global power and water company CORE BUSINESS Power generation and water desalination CRITICAL STRENGTHS Project development & execution Plant operations license to operate Financial discipline Good governance MISSION Aspiring to become employer of choice Deliver superior shareholder value Sought after as a partner Sustaining best in class operating discipline Staying anchored to good governance Earning respect as a good corporate citizen Corporate Values Integrity Teamwork Innovation Excellence Harmony

4 Malakoff Corporation Berhad Contents Business Review Group Financial & Performance Highlights 004 Corporate Profile 007 Corporate Information 008 Malakoff s Shareholders 009 Malakoff s Structure 010 Directors Profile Board of Directors 014 Board of Directors Profile 016 Management Team Organisational Structure 023 Members of Management Committee 024 Corporate Performance Chairman s Statement 028 Performance Review by Chief Executive Officer 036 Asset Performance Operation & Maintenance Electricity Distribution & Chilled Water Supply Ventures Corporate Responsibility Corporate Responsibility 060 Community Development Marketplace Development Environmental Preservation Highlights Corporate Events Highlights 066 Financial Statements Financial Statements Malakoff Corporation Berhad

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6 Group Financial & performance Highlights FY2011 RM 000 FY2012 RM 000 Revenue 5,691,778 5,587,608 Profit before tax 630, ,149 PATMI 459, ,212 Paid-up capital 351, ,344 Shareholders funds 3,552,409 3,836,903 Total assets employed 21,914,769 26,246,279 Per share (sen) earnings Dividend (sen) per share Net assets per share (RM) Revenue Decrease 1.83% RM5,588 million Profit After Tax & Minority Interest increase 1.99% RM468 million Revenue RM Million Profit After Tax & Minority Interest RM Million Shareholders funds RM Million 5,692 5, ,552 3, Malakoff Corporation Berhad

7 Shareholders Funds increase 8.01% RM3,837 million Earning Per Share increase 1.99% 133 sen Total Assets Employed increase 19.77% RM26,246 million Net Assets Per share increase 8.01% RM10.92 Total Assets Employed RM Million Earnings Per Share sen Net Assets per Share RM 26, , Malakoff Corporation Berhad

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9 Corporate Profile Malakoff Corporation Berhad ( Malakoff ) is one of the leading independent power and water producers based in Asia with a world-class reputation. Our core business includes power generation, water desalination and operation & maintenance services. In Malaysia, we own an effective generation capacity of 5,020 MW comprising of 6 power stations that run on gas, oil and coal. Malakoff s power generation assets are held through a number of subsidiaries and associate companies: SEV Power Plant through a percent equity interest in Segari Energy Ventures Sdn Bhd ( SEV ) GB3 Power Plant through a 75.0 percent equity interest in GB3 Sdn Bhd ( GB3 ) Prai Power Plant through its wholly-owned subsidiary Prai Power Sdn Bhd ( PPSB ) Tanjung Bin Power Plant through a 90.0 percent equity interest in Tanjung Bin Power Sdn Bhd ( TBPSB ) Port Dickson Power Plant through a 25.0 percent equity interest in Port Dickson Power Berhad, via its wholly owned subsidiary Hypergantic Sdn Bhd Kapar Power Station through a 40.0 percent equity interest in Kapar Energy Ventures Sdn Bhd ( KEV ) On the international front, we own an effective capacity of 480 MW of power and 358,550 m3/day of water desalination. These projects are located in Saudi Arabia, Bahrain and Algeria. Furthermore, Malakoff provides services through its whollyowned subsidiary companies: Operation and maintenance ( O&M ) services through wholly-owned Teknik Janakuasa Sdn Bhd ( TJSB ), and Malakoff Power Berhad ( MPower ) Electricity distribution activities through Malakoff Utilities Sdn Bhd ( MUSB ) a wholly-owned subsidiary, that currently supplies centralised chilled water and distributes electricity to the landmark Kuala Lumpur Sentral development ( KL Sentral ), which is set to become the transportation and communication hub of Malaysia Project management services for in-house and external projects through Malakoff Engineering ( MESB ), a wholly owned subsidiary of Malakoff. At Malakoff, we aim to work together with all stakeholders for productive partnerships. We believe that long-term partnerships re-enforce our success. As an asset-centered organisation, we maximise the value of assets we manage for our shareholders and partners. We do this by fully understanding the elements of cost, risk and performance unique to the environment in which we operate. 007 Malakoff Corporation Berhad

10 Corporate Information DIRECTORS Dato Wira Syed Abdul Jabbar bin Syed Hassan Non-Independent Non-Executive Chairman Datuk Haji Hasni bin Harun Non-Independent Non-Executive Director Datuk Muhamad Noor bin Hamid Non-Independent Non-Executive Director Cindy Tan Ler Chin Non-Independent Non-Executive Director *Dato Azian binti Mohd Noh Non-Independent Non-Executive Director Andrew Rowan Ian Yee Non-Independent Non-Executive Director Ooi Teik Huat Non-Independent Non-Executive Director Tan Sri Dato Seri Alauddin bin Dato Mohd Sheriff Independent Non-Executive Director Datuk Idris bin Abdullah Independent Non-Executive Director Datuk Dr. Syed Muhamad bin Syed Abdul Kadir Independent Non-Executive Director Dr. Mabel Lee Khuan Eoi Alternate to Datuk Haji Hasni bin Harun Craig Robert Martin Alternate to Andrew Rowan Ian Yee COMPANY SECRETARIES Yeoh Soo Mei (MAICSA ) Bakar BIN Ahmad (MAICSA ) AUDIT COMMITTEE MEMBERS Datuk Dr. Syed Muhamad bin Syed Abdul Kadir Chairman Datuk Idris bin Abdullah Tan Sri Dato Seri Alauddin bin Dato Mohd Sheriff Datuk Haji Hasni bin Harun Ooi Teik Huat REMUNERATION COMMITTEE MEMBERS dato Wira Syed Abdul Jabbar bin Syed Hassan Chairman Datuk HAJI Hasni BIN Harun DATO AZIAN BINTI MOHD NOH Nomination Committee Members Tan Sri Dato Seri Alauddin bin Dato Mohd Sheriff Chairman Datuk Idris bin Abdullah Datuk Muhamad Noor bin Hamid REGISTERED OFFICE Ground Floor, Wisma Budiman Persiaran Raja Chulan, Kuala Lumpur Tel : Fax : AUDITORS KPMG PRINCIPAL BANKER MALAYAN BANKING BERHAD Company Address Level 10, Block 4, Plaza Sentral Jalan Stesen Sentral 5, Kuala Lumpur Tel : Fax : Website : * Dato Azian binti Mohd Noh has since resigned on 18 March Her replacement, En. Zalman bin Ismail was appointed on the same date. 008 Malakoff Corporation Berhad

11 MALAkOFF S SHAREHOLdERS AS AT 28 FEBRuARy 2013 SCI ASIA 6.5% SEASAF 2.5% kwap 10% EPF 30% AOA 22.24% 28.76% MMC Employees Provident fund ( EPf ) MMc corporation Berhad ( MMc ) kumpulan Wang Persaraan (diperbadankan) ( kwap ) standard chartered il & fs Asia infrastructure growth fund company Pte limited ( sci Asia ) Anglo-oriental (Annuities) sdn. Bhd. ( AoA )* seasaf Power sdn Bhd ( seasaf ) * AoA is a wholly-owned subsidiary of MMc 009 MALAkOFF CORPORATION BERHAd AnnuAl REPoRT

12 Malakoff s Structure as at 28 February 2013 Power Generation OPERATION AND MAINTENANCE SERVICES ELECTRICITY DISTRIBUTION 93.75% Segari Energy Ventures Sdn Bhd 75% GB3 Sdn Bhd 100% Prai Power Sdn Bhd 90% Tanjung Bin Power Sdn Bhd 40% Kapar Energy Ventures Sdn Bhd 100% Hypergantic Sdn Bhd 25% Port Dickson Power Berhad 100% Tanjung Bin Energy Sdn. Bhd. 100% Tanjung Bin Energy Issuer Berhad 100% Malakoff Power Berhad 100% Tanjung Bin O&M Berhad (formerly known as Sterling Asia Berhad) 100% Teknik Janakuasa Sdn Bhd 100% Natural Analysis Sdn Bhd VII 100% TJSB Services Sdn Bhd 100% TJSB International Limited 100% TJSB International (Shoaiba) Limited 20% Saudi-Malaysia Operation & Maintenance Services Company Limited 20% Al-Imtiaz Operation & Maintenance Company Limited 100% TJSB Middle East Limited 100% TJSB Global Sdn Bhd 49% hyflux-tjsb Algeria SPA 100% Malakoff Utilities Sdn. Bhd. (formerly known as Wirazone Sdn Bhd) I Dormant II Malakoff s effective equity interest of 20 percent and 12 percent in SAMAWEC and SWEC, respectively, is held via Malakoff Gulf Limited which holds 40 percent equity interest in MSCSB which in turn holds 50 percent equity interest in SAMAWEC. SAMAWEC holds 60 percent equity interest in SWEC. lll IV V VI Malakoff s effective equity interest of 11.7 percent in SEPCL is held via Malakoff Gulf Limited which holds 40 percent equity interest in MSCSB which in turn holds 50 percent equity interest in SAMAWEC. SAMAWEC holds 60 percent in SEHCL which in turn holds 97.5 percent equity interest in SEPCL. Malakoff s effective equity interest of 43.4 percent in SPHL is held via Malakoff Technical (Dhofar) Limited which holds a direct 43.4 percent equity interest in OTPL which in turn holds 100 percent equity interest in SPHL. Malakoff s effective equity interest of 35.7 percent in AAS is held via MADSB which holds 70 percent equity interest in TDIC which in turn holds 51 percent equity interest in AAS. Malakoff s effective interest of 40 percent in HPC is held via MHHCL which holds 57.1 percent equity interest in MSHHCL which in turn holds 70 percent equity interest in HPC. VII Ceased operation 010 Malakoff Corporation Berhad

13 PROJECT MANAGEMENT OFFSHORE OTHERS 100% Malakoff Engineering Sdn Bhd 100% MESB Project Management Sdn Bhd l 100% Malakoff Ras Azzour Limited (now known as Malakoff Oman Desalination Company Limited) I 100% Malakoff Hidd Holding Company Limited (formerly known as IP Middle East Holding Company Limited) ( MHHCL ) VI 57.1% Malakoff Summit Hidd Holding Company Limited (formerly known as IPSUM Hidd Holding Company Limited) ( MSHHCL ) VI 40% Hidd Power Company B.S.C ( HPC ) VI 45% Muscat City Desalination Company S.A.O.C 100% Spring Assets Limited I 100% Malakoff Capital (L) Ltd I 100% Malakoff International Limited ( MIL ) 100% Malakoff Gulf Limited 40% Malaysian Shoaiba Consortium Sdn Bhd ( MSCSB ) 20% Saudi-Malaysia Water & Electricity Company Limited ( SAMAWEC ) II 12% Shuaibah Water & Electricity Company Limited ( SWEC ) II 12% Shuaibah Expansion Holding Company Limited ( SEHCL ) III 11.7% Shuaibah Expansion Project Company Limited ( SEPCL ) III 100% Malakoff Technical (Dhofar) Limited 43.4% Oman Technical Partners Limited ( OTPL ) IV 100% Tuah Utama Sdn Bhd 20% Lekir Bulk Terminal Sdn Bhd 54% Desa Kilat Sdn Bhd 100% Malakoff R&D Sdn Bhd 43.4% Salalah Power Holdings Limited ( SPHL ) IV 100% Malakoff AlDjazair Desal Sdn Bhd ( MADSB ) 70% Tlemcen Desalination Investment Company SAS ( TDIC ) 35.7% Almiyah Attilemcania SPA ( AAS ) V 011 Malakoff Corporation Berhad

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15 RE: structure With the blueprint to map its path for generating growth, Malakoff nurtures its foundation of strength, by focusing on organisational balance and structure that is being prepared for the next phase of directing its decisive and defining change.

16 Board of directors from left to right: Datuk Muhamad Noor bin Hamid Non-Independent Non-Executive Director Dato Wira Syed Abdul Jabbar bin Syed Hassan Non-Independent Non-Executive Chairman Datuk Haji Hasni bin Harun Non-Independent Non-Executive Director Cindy Tan Ler Chin Non-Independent Non-Executive Director 014 Malakoff Corporation Berhad

17 Dato Azian binti Mohd Noh Non-Independent Non-Executive Director Andrew Rowan Ian Yee Non-Independent Non-Executive Director Ooi Teik Huat Non-Independent Non-Executive Director Datuk Dr. Syed Muhamad bin Syed Abdul Kadir Independent Non-Executive Director Datuk Idris bin Abdullah Independent Non-Executive Director Tan Sri Dato Seri Alauddin bin Dato Mohd Sheriff Independent Non-Executive Director Craig Robert Martin Alternate to Andrew Rowan Ian Yee Dr. Mabel Lee Khuan Eoi Alternate to Datuk Haji Hasni bin Harun 015 Malakoff Corporation Berhad

18 Board of directors profile Dato Wira Syed Abdul Jabbar bin Syed Hassan Non-Independent Non-Executive Chairman Dato Wira Syed Abdul Jabbar Syed Hassan, aged 73, was appointed to the Board of the Company as Non-Independent Non- Executive Chairman on 1 January He also chairs the Remuneration Committee of the Board. He obtained a Bachelor of Economics degree from University of Western Australia in 1963 and a Masters of Science degree in Marketing from University of Newcastle- Upon-Tyne, United Kingdom in He started his career on 1 January 1964 as the Assistant District Officer/Assistant Development Officer/Assistant Land Officer in Kedah State of Government where he was tasked to handle land matters, supervise district development projects and assist the state economic development planning. A year later, he joined Bank Negara Malaysia as an Economist before leaving to join the Federal Agricultural Marketing ( FAM ) as an Economist on 1 January In FAM, he established amongst others, the Padi and Rice Marketing Board ( Padi & Rice Board ) and its pilot scheme for the purchase, grading, storage, milling and distribution of padi and rice in the Tanjong Karang and Sabak Bernam. On 1 January 1967, he joined Padi & Rice Board as a Manager. During his three years tenure in Padi & Rice Board, he assisted in amongst others, the drafting of the law for the setting up of a Lembaga Padi dan Beras Negara to take over the function of the Padi & Rice Board and to extend coverage to all states in Malaysia, with the power to regulate the marketing of padi and rice. On 31 December 1970, he left Padi & Rice Board as its General Manager, to pursue his Masters of Science degree in marketing in the University of Newcastle-Upon-Tyne, United Kingdom. After obtaining his Masters degree, he was appointed the Executive Secretary for the Federal Agricultural Marketing Authority ( FAMA ) on 1 January He held that position until 31 December 1973 before leaving FAMA to assume the position of Senior Economist and Acting Secretary- General of the Association of Natural Rubber Producing Countries ( ANRPC ), representing the Government in the ANRPC. He held the position until 31 December 1979 before being appointed as the Chief Executive Officer of the Kuala Lumpur Commodity Exchange from 1980 to He then assumed the position of the Executive Chairman of the Malaysia Monetary Exchange from 1996 to 1998 and the Executive Chairman of the Commodity and Monetary Exchange of Malaysia from 1998 to Dato Wira Syed Abdul Jabar is currently the Chairman of MMC Corporation Berhad, Tradewinds (M) Berhad, Tradewinds Plantation Berhad, Padiberas Nasional Berhad, Aliran Ihsan Resources Berhad and board members of KAF Investment Bank Berhad and MARDEC Berhad. Dato Wira Syed Abdul Jabbar bin Syed Hassan 016 Malakoff Corporation Berhad

19 Datuk Haji Hasni BIN Harun Non-Independent Non-Executive Director Datuk Haji Hasni Harun, aged 55, was appointed to the Board of the Company as Non-Independent Non-Executive Director on 24 May He is a member of the Audit Committee and Remuneration Committee of the Board. He obtained a Bachelor of Accounting (Honours) degree from University of Malaya in 1980 and a Masters degree in Business Administration from United States International University, California, USA in He is a member of the Malaysian Institute of Accountants. He held several senior positions in the Accountant General s Office from 1980 to He was the Senior General Manager of the Investment Department in Employees Provident Fund from 1994 to 2001, and the Managing Director of RHB Asset Management Sdn Bhd from 2001 until Thereafter, he joined DRB-HICOM Berhad as its Group Chief Financial Officer and in January 2007, he joined MMC Corporation Berhad ( MMC ) as the Group Chief Operating Officer. In March 2008, he was appointed as the Chief Executive Officer Malaysia of MMC prior to his current position as the Group Managing Director of MMC in May Datuk Haji Hasni Harun also sits on the Board of MMC, Zelan Berhad, Aliran Ihsan Resources Berhad, Johor Port Berhad, MMC Engineering Group Berhad, Gas Malaysia Berhad, Hidd Power Company B.S.C.(c) and several private limited companies. the Management Program at the Wharton Business School of Management, University of Pennsylvania, USA. He has held numerous positions during his 20 years of service in PETRONAS and PETRONAS Gas Sdn Bhd, including heading up the Peninsular Gas Utilisation II project team. He also worked in OGP Technical Services Sdn Bhd, a joint venture company between PETRONAS and Novacorp Corporation of Canada, where he was the General Manager of the Pipeline Division. His expertise has taken him to overseas assignments mainly in Sudan where he was the Project Director for the Muglad Basin Oil Development Project. In 2000, he was appointed as the Chief Operating Officer of Projass Engineering Sdn Bhd, a Class A Bumiputera construc tion company. He joined Gas Malaysia Berhad in 2003 as Chief Operating Officer and was subsequently appointed as Chief Executive Officer in February He is currently the Managing Director of Gas Malaysia Berhad and he also sits on the board of directors of MMC Engineering Group Berhad, Kapar Energy Ventures Sdn Bhd and several private limited companies. He has more than 30 years of direct working experience in the oil and gas industry ranging from project planning and implementation, operation, consulting and contracting. Datuk Muhamad Noor BIN Hamid Non-Independent Non-Executive Director Datuk Muhamad Noor Hamid, aged 61, was appointed to the Board of the Company as Non-Independent Non-Executive Director on 13 July He is also a member of the Nomination Committee of the Board. He obtained a Bachelor of Science (Hons) in Mechanical Engineering from Sunderland Polytechnic, England in 1977 and a Post Graduate Diploma in Gas Engineering from the Institute of Gas Technology in Chicago, Illinois, USA in He has also attended Datuk Haji Hasni bin Harun Datuk Muhamad Noor bin Hamid 017 Malakoff Corporation Berhad

20 Board of Directors profile (cont d) Cindy Tan Ler Chin Non-Independent Non-Executive Director Madam Cindy Tan Ler Chin, aged 52, was appointed to the Board of the Company as Non-Independent Non-Executive Director on 9 August She obtained an Honours Degree in Economics, majoring in statistics, from Universiti Kebangsaan Malaysia in In 1991, she obtained a Certified Diploma in Accounting and Finance, accorded by the Chartered Association of Certified Accountants. In 1995, she attended the Wharton-National University of Singapore Banking Programme. She joined the Finance Investment Department of Employees Provident Fund (EPF) in She was promoted to Manager (Investment) in 1993 and to Senior Manager (Investment) in In April 2002, she was promoted to General Manager (Corporate Finance, Investment). In June 2009, she was appointed to her current position as the Chief Investment Compliance Officer of EPF. Dato Azian BinTi Mohd Noh Non-Independent Non-Executive Director Dato Azian Mohd Noh, aged 60, was appointed to the Board of the Company as Non Independent Non-Executive Director on 9 August She is also a member of the Remuneration Committee of the Board. She graduated from Universiti Malaya in 1976 with a Bachelor of Economics (Honours) majoring in Accounting and a Masters in Business Administration from Universiti Kebangsaan Malaysia in She also has completed the Advanced Management Programme in Harvard Business School, Harvard University, Massachusetts, USA in She is also a member of the Malaysian Institute of Accountants. She started her career as a Treasury Accountant in the Loans & Investment Division, Accountant General s Department and Ministry of Public Enterprise between 1980 to She joined Kraftangan Malaysia as a Senior Accountant in 1982 and in 1985, joined Standard and Industrial Research Institute of Malaysia ( SIRIM ) as its Deputy Director of Finance. Subsequently, she was appointed as the Deputy Director of Kumpulan Wang Amanah Pencen, Accountant General s Department from 1991 to After completing her Masters in Business Administration in 1994, she assumed the position of Deputy Director, Kumpulan Wang (Persaraan) Diperbadankan ( KWAP ), Accountant General s Department. She subsequently was appointed as the first Chief Executive Officer of KWAP, the corporatised entity of Kumpulan Wang Amanah Pencen on 1 March She also sits on the board of Valuecap Sdn Bhd and is the Chairman of i-vcap Management Sdn. Bhd. Dato Azian binti Mohd Noh Cindy Tan Ler Chin 018 Malakoff Corporation Berhad

21 Andrew Rowan Ian Yee Non-Independent Non-Executive Director Mr. Andrew Rowan Ian Yee, aged 47, an Australian citizen, is a Non-Independent Non-Executive Director on the Board. He has been on the Board since August 2007 and has served either as a director or an alternate director representing SCI Asia s interest on the Board. His current term as a B o a rd m e m b e r c o m m e n c e d o n 1 September He obtained a Bachelor of Commerce degree, majoring in Accounting and a Bachelor of Law degree in 1989 from the University of New South Wales, Sydney, Australia. He is also qualified to practice law in Australia. He is the joint chief executive officer of Standard Chartered IL & FS Asia Infrastructure Growth Fund ( SCI Asia ) and is based in Singapore. He joined Standard Chartered s Principal Finance team in 2007 as a Managing Director and Global Head of infrastructure. He has 20 years of infrastructure experience gained from positions in investment banking, industry and private equity. Prior to joining Standard Chartered and launching SCI Asia, he founded Renewable Energy Asia Pacific, a renewable energy fund. He was also the Head of Mergers and Acquisitions at InterGen Asia where he participated in the US$3.3 billion sale of InterGen to a partnership between AIG and the Ontario Teachers Pension Plan during 2004 and Prior to InterGen, Andrew was Head of Goldman Sachs Asia s Energy & Power advisory team, based in Hong Kong. He was also a Director of Corporate Finance at Barclays Australia which was acquired by ABN AMRO in 1997, prior to which he worked in the Corporate Finance team of Barclays in London. Ooi Teik huat Non-Independent Non-Executive Director Mr. Ooi Teik Huat, aged 53, was appointed to the Board of the Company as Non- Independent Non-Executive Director on 1 January He is also a member of the Audit Committee of the Board. He obtained a Bachelor Degree in Economics from Monash University, Melbourne, Australia in 1984 and is a member of Malaysian Institute of Accountants and CPA Australia. He began his career with Messrs Hew & Co. (now known as Messrs Mazars), Chartered Accountants in After leaving Messrs Hew & Co in June 1989, he joined Malaysian International Merchant Bankers Berhad (now known as Hong Leong Investment Bank Berhad) until August He subsequently joined Pengkalan Securities Sdn Bhd (now known as PM Securities Sdn Bhd) in August 1993 as Head of Corporate Finance, before leaving in September 1996 to set up Meridian Solutions Sdn Bhd where he is presently a director. He also sits on the boards of MMC Corporation Berhad, Tradewinds (M) Berhad, Tradewinds Plantation Berhad, DRB-HICOM Berhad, Zelan Berhad, Johor Port Berhad and several private limited companies. Ooi Teik huat Andrew Rowan Ian Yee 019 Malakoff Corporation Berhad

22 Board of Directors profile (cont d) Tan Sri Dato Seri Alauddin bin Dato Mohd Sheriff Independent Non-Executive Director Tan Sri Dato Seri Alauddin Dato Mohd Sheriff, aged 66, was appointed to the Board of the Company as Independent Non-Executive Director on 11 December He is also the Chairman of the Nomination Committee and a member of the Audit Committee of the Board. He was admitted as an Utter Barrister of the Honourable Society of Inner Temple, London, having been called to the Bar of England & Wales in He held various posts in the legal and judicial service since He started his career with the Judiciary as a Magistrate in Bukit Mertajam in 1971 and in Kangar in Thereafter, he was appointed as President of the Sessions Court in Sungai Petani, Kuantan and Taiping. In 1977, he was appointed as Senior Federal Counsel with the Income Tax Department and the Attorney General s Chambers. In June 1979, he was seconded to PETRONAS Carigali Sdn Bhd as its Secretary cum Legal Advisor. Thereafter, he was appointed as the Legal Advisor to the State of Johor in October In April 1982, he took the office of the Legal Advisor of Negeri Sembilan. He was again appointed as the Legal Advisor to the state of Johor in June He was appointed as the Chairman of the Advisory Board in the Prime Minister s Department since June He was appointed as Judicial Commissioner of the High Court of Malaya in Kuala Lumpur on 1 February 1992 and was transferred to the High Court of Malaya in Johor in the same year. He was later elevated as the Judge of the High Court wherein he had served in the High Courts of Johor, Kangar and Alor Star before being elevated to the Court of Appeal in April After serving for about three years in the Court of Appeal, he was elevated to the Federal Court of Malaysia on 12 July During his tenure as a Judge of the Federal Court, he had the occasion of carrying out the duties and functions of the President of the Court of Appeal from 15 August 2006 until 4 September On 5 September 2007, he was appointed as the Chief Judge of Malaya and on 18 October 2008, he was appointed as the President of the Court of Appeal until his retirement in August He also sits on the board of AFFIN Holdings Berhad. DATUK IDRIS BIN ABDULLAH Independent Non-Executive Director Datuk Idris bin Abdullah, aged 56, was appointed to the Board the Company as Independent Non-Executive Director on 11 December He is also a member of the Audit Committee and Nomination Committee of the Board. He graduated from Universiti Malaya in 1981 with a LLB. (Hons) degree. His career started in 1981 where he read in chambers at Messrs. Ting Tung Ming Esq in Sibu, Sarawak. In 1982, he was admitted to The Roll of Advocates of The High Court of Malaya in Sabah and Sarawak. Tan Sri Dato Seri Alauddin bin Dato Mohd Sheriff Datuk Idris bin Abdullah 020 Malakoff Corporation Berhad

23 He also served as Resident Lawyer at Ting & Company, Sibu, Sarawak from 1981 to 1983, the In-House Legal Advisor of Sarawakian Group of Companies from 1984 to 1985 and has been with Messrs. Idris & Company Advocates, Kuching, Sarawak since 1985 and is currently a Senior Partner in Messrs. Idris & Company Advocates, Kuching, Sarawak. His experience in the corporate sector began in 1979 as a partner/shareholder in a group of Bumiputera companies in Sibu, Sarawak. From 1995 to date, he is an Advisor to a number of Sarawak companies engaged in construction and building, motor trading, recreation club and educational institution. He was also a director/shareholder of a Bumiputra PKK Class A/CIDB Group 7 company engaged in a number of government building/infrastructure projects. From September 2002 to September 2005, he was the Director and Chairman of Kuantan Flourmills Berhad. He was appointed as a Commission Member of the Companies Commission of Malaysia (CCM) effective July 2012 and is also a Commission Member of the Malaysian Communications and Multimedia Commission (SKMM). Datuk Idris Abdullah also holds several key positions in Malaysia and Singapore, namely as a Director of Bank Pembangunan Berhad, Chairman/Director of Pembangunan Leasing Corporation Sdn Bhd, Chairman/Director of PLC Credit & Factoring Sdn Bhd, Chairman/ Director of Magnus Energy Group Ltd (listed on the Singapore SESDAQ), Chairman/ Director of APAC Coal Ltd (listed on the Australian Stock Exchange), Chairman/Director of Xian Leng Holdings Berhad (listed on Bursa Securities), and Director of Konsortium Rangkaian Serantau Sdn Bhd. He also sits on the boards of BI Credit & Leasing Berhad and several private limited companies. He graduated with a Bachelor of Arts (Hons.) from Universiti Malaya in He obtained a Masters of Business Administration from the University of Massachusetts, USA, in 1977 and proceeded to obtain a PhD (Business Management) from Virginia Polytechnic Institute and State University, USA in In 2005, he obtained a Bachelor of Jurisprudence (Hons.) from the University of Malaya. He obtained the Certificate in Legal Practice in 2008 from the Malaysian Professional Legal Board. He was admitted as an Advocate and Solicitor of the High Court of Malaya in July 2009, and obtained the Master of Law (Corporate Law) from Universiti Teknologi MARA in December In June 2011, he became a member of the Chartered Institute of Arbitrators, United Kingdom and in May 2012, he became the fellow of the said Institute. He started his career in 1973 as Senior Project Officer, School of Financial Management at the National Institute of Public Administration (INTAN) and held various positions before his final appointment as Deputy Director (Academic). In November 1988, he joined the Ministry of Education as Secretary of Higher Education and thereafter assumed the post of Deputy Secretary (Foreign and Domestic Borrowing, Debt Management), Finance Division of Federal Treasury. Between June 1993 to June 1997, he joined the board of directors of Asian Development Bank, Manila, Philippines, first as alternate Executive Director and later as an Executive Director. In July 1997, he joined the Ministry of Finance as Secretary (Tax Division) and subsequently became the Deputy Secretary General (Operations) of Ministry of Finance. Prior to his retirement, he was Secretary General, Ministry of Human Resources from August 2000 to February He is the Chairman of CIMB Islamic Bank Berhad, CIMB Middle East BSC and CIMB-Principal Islamic Asset Management Sdn Bhd. He is also a Director of CIMB Group Sdn Bhd, CIMB Bank Berhad, CIMB Group Holdings Berhad, Bursa Malaysia Securities Berhad, Euro Holdings Berhad, Solutions Engineering Holdings Berhad, BSL Corporation Berhad and ACR ReTakaful Berhad (formerly known as ACR ReTakaful SEA Berhad). He also holds directorships in a number of private companies. Datuk Dr. Syed Muhamad bin Syed Abdul Kadir Independent Non-Executive Director Datuk Dr. Syed Muhamad Syed Abdul Kadir, aged 66, was appointed to the Board of the Company as Independent Non-Executive Director on 11 December He also is the Chairman of the Audit Committee of the Board. Datuk Dr. Syed Muhamad bin Syed Abdul Kadir 021 Malakoff Corporation Berhad

24 Board of Directors profile (cont d) DR. Mabel LEE KHUAN EOI Alternate to Datuk Haji Hasni bin Harun Dr. Mabel Lee Khuan Eoi, aged 57, is the alternate director to Datuk Hj. Hasni Harun and was appointed to the Board of the Company on 1 January She was a board member of the Company since 11 April 2008 before she resigned on 31 December 2011 to assume her current position on the Board as the alternate director of Datuk Haji Hasni bin Harun. She obtained her Bachelor of Accounting degree (1st class Honour) from University Malaya in 1979, a Masters in Business Administration (with distinction) from the University of Hull, United Kingdom in 1993 and a Doctor of Business Administration degree from the University of Newcastle, Australia in She is a Chartered Financial Analyst charterholder. She is also a member of the Malaysian Institute of Accountants, an Associate Member with Institut Bank-Bank Malaysia and is a Certified Business Coach. She is currently the Director of Corporate Strategy at MMC Corporation Berhad ( MMC ). Prior to joining MMC, she had worked with JP Morgan Chase s Kuala Lumpur office as Vice President of its Investment Banking Division. She also sits on the board of directors of Anglo-Oriental (Annuities) Sdn Bhd and several private limited companies. Craig Robert Martin Alternate to Andrew Rowan Ian Yee Mr. Craig Robert Martin, a British citizen, aged 42, was appointed to the Board of the Company as Alternate Director to Mr. Andrew Rowan Ian Yee on 12 December He has an MBA with distinction from INSEAD and a Masters degree in Electronic Engineering from the University of York, United Kingdom. He has lived and worked in South East Asia for 20 years and during the last 12 years he has been responsible for originating, structuring and executing numerous private equity deals for institutional investors. He also developed, structured and raised funds from institutional and private banking sources. He joined CapAsia in mid-2010 where he is a managing partner and Head of Fund for the South East Asian Strategic Assets Fund ( SEASAF ) and the CapAsia ASEAN Infrastructure Fund III ( CAIF III ). He is a member of the Investment committees for SEASAF and CAIF III. Prior to CapAsia, he was with Prudential Asset Management (now known as Eastspring Investments) for five years, where he served as an Investment Director of Prudential Vietnam Fund Management Company. Before joining Prudential, Mr. Martin was with Standard Chartered Private Equity Pte Limited, a wholly-owned subsidiary of Standard Chartered Bank Plc, from its inception where he served as an Associate Director. He is a member of the Singapore Institute of Directors and sits on several of CapAsia s boards and also holds a number of external non-executive director roles. Dr. Mabel Lee Khuan Eoi Craig Robert Martin 022 Malakoff Corporation Berhad

25 Organisational Structure CHIEF EXECUTIVE OFFICER CHIEF OPERATING OFFICER OPERATION & MAINTENANCE DIVISION ASSET MANAGEMENT DIVISION VENTURES I DIVISION VENTURES II DIVISION GROUP FINANCE & ACCOUNTS DIVISION CORPORATE SERVICES DIVISION CORPORATE AFFAIRS & EXTERNAL RELATIONS DEPARTMENT Green Technology Initiative DEPARTMENT LEGAL SERVICES DEPARTMENT 023 Malakoff Corporation Berhad

26 MemberS of management Committee Habib Husin Chief Operating Officer Zainal Abidin Jalil Chief Executive Officer Ruswati Othman Chief Financial Officer / Senior Vice President, Group Finance & Accounts Division 024 Malakoff Corporation Berhad

27 Bani Zainal Azmian Senior Vice President, Corporate Services Division Azhari Sulaiman Senior Vice President, Ventures I Division Nordin Kasim Senior Vice President, Operation & Maintenance Division Mohd Shokri Daud Vice President, Asset Management Division 025 Malakoff Corporation Berhad

28 RE: strategise By positioning strategically, Malakoff is striven in making calculated moves, shaping its foundation of strength and scale to gain tactical leverage and a winning formation, with the experience and expertise of staying ahead from the rest.

29

30 Dato Wira Syed Abdul Jabbar bin Syed Hassan Chairman 028 Malakoff Corporation Berhad

31 Chairman s Statement Dear Stakeholders, The financial year ended 31 December 2012 (FY 2012) has been another positive one for Malakoff Corporation Berhad (the Group), and the results achieved underscore the underlying strength of its business. Significant progress was made on the corporate and operational fronts, firmly consolidating the Group s position as the Number One Independent Power Producer (IPP) in Malaysia with a growing international footprint. We have covered a lot of ground and the theme of this year s report, Re-energising the Future, aptly sums up how far Malakoff has come in its transformation journey. This is a journey that is by no means completed. Malakoff remains an exciting and unfolding enterprise as we strive to further unlock the value-creating potential of our businesses in Malaysia and the global marketplace. As we continue to grow from strength to strength, we have set our sights higher: to be a leading Malaysian multi-national power company engaged in the core business of power generation and water desalination. Guided by a clear vision of where we should be heading and with a proven and viable road-map to take us there, I firmly believe that the best years for Malakoff are just round the corner. On behalf of the Board of Directors, it is my pleasure to present this Annual Report and Audited Accounts of Malakoff at Group and Company level for the financial year ended 31 December FINANCIAL PERFORMANCE Malakoff continued to turn in a very solid financial performance, despite a marginal decline in turnover. For the FY 2012, turnover was posted at RM5.59 billion compared to RM5.69 billion recorded the previous year. The 2 percent decline was attributed mainly to a fall in the average price of coal and lower usage of distillate oil as back-up fuel during the year. The year in review however, saw a 2 percent increase in the Group s profit after tax and minority interest (PATMI) to RM468.2 million from RM459.1 posted previously. This was mainly due to the continued commendable performance of our gas-fired power plants at Lumut and Prai, good profit contribution from our overseas associates in the Kingdom of Saudi Arabia and Bahrain and lower finance costs. As at 31 December 2012, our total assets stood at RM26,246 million and our total equity was RM4,177 million. Our gearing ratio was a manageable 3.7, in light of the Group s resilient earnings track record, with a reliable cash flow supported by long-term Power Purchase Agreements (PPAs). 029 Malakoff Corporation Berhad

32 Chairman s Statement (cont d) CORPORATE DEVELOPMENTS Integral to our commitment to strengthen asset quality and lay the foundations for future profitable growth, several key developments stood out on the corporate front in 2012: On 29 February, our wholly-owned subsidiary, Tanjung Bin Energy Issuer Bhd (TBEI) entered into financing agreements for approximately RM6.5 billion in relation to the development of the new 1,000MW Tanjung Bin Energy Power Plant. Rating Agency Malaysia (RAM) assigned a preliminary AA3 rating for TBEIB s Sukuk facility, attesting to the project s high reliability and credit worthiness. Our stable of international assets was expanded on 14 May when Malakoff concluded a US$90 million financing arrangement to acquire a 40.0 percent indirect interest in Hidd Power Company Limited (HPC), the Kingdom of Bahrain s largest independent power generation and water desalination plant. HPC supplies Bahrain with approximately 39.0 percent and 62.0 percent of the Kingdom s current power and water supply respectively. The acquisition is expected to further strengthen Malakoff s position as a leading player in the Middle East and North Africa (MENA) region. On 18 October, we acquired the business of HICOM Power Sdn Bhd (HPSB) for RM575.0 million from DRB-Hicom Bhd. Before the transaction, HPSB was principally involved in providing operations and maintenance (O&M) services to the Tanjung Bin Power Plant under a 25-year concession. With the acquisition exercise completed on 17 December, the Group will be able to add value to its operations at Tanjung Bin and strengthen its leadership position in the energy and utilities segment. In a key development, in 2012 Malakoff had undertaken an internal rationalisation of the Group. The rationalisation exercise involved the incorporation of a wholly-owned subsidiary, MPower, whereupon the domestic and foreign O&M businesses of the Group were segregated. This sees the domestic O&M businesses of Teknik Janakuasa Sdn Bhd and Natural Analysis Sdn Bhd being transferred to and are now undertaken by MPower. On 30 November, RAM assigned our contractual operating framework at various levels in our Group of Companies with high credit ratings of at least AA3. These ratings are also a reflection of our strong and stable financial performance over the years. While acquiring strategic stakes, we are continually reviewing the asset quality of our investment portfolio. Thus, in April 2012, Malakoff disposed its entire 25.0 percent stake in Enara Energy Investment PSC, which in turn holds 51.0 percent ownership of Central Electricity Generating Company (CEGCO), the largest electricity generator company in the Hashemite Kingdom of Jordan. OPERATIONAL HIGHLIGHTS Malakoff is a home-grown Malaysian entity with a growing global reach. Our core business is grounded in power generation, where we are the largest IPP in the country. The Group s power generation portfolio in Malaysia is complemented by a growing portfolio of water and power assets in the MENA region established through organic growth and acquisitions. Apart from power generation, we also provide O&M as well as project management services. During the year, the Group s electricity distribution and district cooling business has been rebranded and repositioned as another core line of business. Some of the highlights of 2012 include the following: Among our local assets, the SEV Power Plant achieved an availability factor of percent, which exceeded the 86.0 percent threshold set under the Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB). The GB3 Power Plant and the Prai Power Plant achieved an equivalent availability factor of percent and percent respectively. The Port Dickson Power Plant was the star performer among our associate companies, achieving an exceptionally high equivalent availability factor of more than 99.0 percent, forced outage rate of less than 0.2 percent and commercial starting reliability of almost percent, a figure that has been sustained for the past 16 years. 030 Malakoff Corporation Berhad

33 Among our international assets, the Shuaibah Phase 3 Independent Water and Power Project (Kingdom of Saudi Arabia), Shuaibah Phase 3 Expansion Independent Water Project (Kingdom of Saudi Arabia) and the Al Hidd Power Power and Water Plant (Kingdom of Bahrain) all achieved an availability factor exceeding 90.0 percent. On the strength of its performance, SEV was short-listed by the Energy Commission of Malaysia ( Energy Commission ) in October 2012 to bid for an extension of the existing PPA due to expire in In February 2013, SEV has secured a 10-year extension of its concession. The Tanjung Bin Power Plant successfully earned certification to MS ISO/IEC 27001:2001 Information Security Management System. Our other plants have also earned to re-certification for MS ISO 9001 Quality Management System as well as OHSAS 18001:2007 and MS 1722 Occupational Health and Safety Standards. We continued to improve on our safety record registering 0.28 Lost Time Injury (LTI) per million working hours in 2012, compared to 1.1 LTI the previous year. Despite the progress made, we will continue to raise the bar. We are especially proud of our Prai Power Plant, which has upheld its safety record with no LTI recorded since it commenced operations in In April, we launched our Vendor Development and Management Portal (VDMP) to expedite the entire procurement cycle. On 13 June, Malakoff s wholly-owned subsidiary Wirazone Sdn Bhd signed a Chilled Water Supply Agreement with three developers in KL Sentral. Pursuant to this agreement, Wirazone will boost the capacity of its existing centralised chilled water plant from 7,000 refrigerant ton (RT) to 17,000 RT. Malakoff Utilities Sdn Bhd (formerly known as Wirazone Sdn Bhd) was launched on 23 November to reposition the Group s electricity distribution and district cooling business as another core line of business. On 10 November, Malakoff was part of a consortium that was awarded a contract by the Tender Board of the Sultanate of Oman to undertake the development and construction of the Al Ghubrah IWP in the Sultanate of Oman. Meanwhile, the construction of the new Tanjung Bin Energy Power Plant is progressing on track to meet targeted commercial operations by 1 March As reported last year, in a very competitive bidding exercise, Malakoff was awarded a RM6.5 billion contract in June 2011 to construct the 1,000 MW Tanjung Bin Energy power plant. Construction works commenced in March 2012, with the first concrete pouring ceremony held on 10 August. The new power plant will ramp up Tanjung Bin Power Plant s current generating capacity of 2,100 MW to a total combined generating capacity of 3,100 MW in Tanjung Bin. The Tanjung Bin Energy Power Plant will deploy cutting-edge supercritical technology including supercritical steam turbine and generator, boiler and plant auxiliaries. The technology will accommodate the utilisation of 100 percent sub-bituminous coal. Upon commissioning, the plant s generating capacity will be supplied to TNB under a 25-year PPA. It is expected to contribute towards the economic growth of the Southern Region, notably the Iskandar Economic Corridor, where power demand is projected to surge from 1,479 in 2010 to 2,254 MW by the year Incidentally, the Tanjung Bin site is also sufficiently large to cater for further capacity expansion with ready access to requisite land, existing coal handling and transmission infrastructure. No section of this report would be complete without mention of our efforts in the increasingly important area of corporate social responsibility (CSR), especially our out-reach programmes rolled-out under the Malakoff Community Partnerships platform. While CSR is covered in a separate section of this report, I would like to point out that CSR has always been given its due attention alongside mainstream business issues from the time of the Company s inception. For FY 2012 alone, a sum of RM4.0 million was set aside for our CSR programmes. I am personally involved in the Group s CSR 031 Malakoff Corporation Berhad

34 Chairman s Statement (cont d) efforts in my capacity as Chairman of the Malakoff Community Partnerships Advisory Panel. The panel includes experts drawn from relevant external bodies to provide a more holistic oversight and lend credence to our CSR initiatives. The success of our CSR programmes can be gauged by the findings of a media dipstick audit conducted over a one-year period from January The findings indicate that more than half of the respondents who participated in the audit associated Malakoff with its CSR initiatives. AWARDS AND ACCOLADES Our achievements on the operational front were matched by a number of awards and accolades received during the year. Over the years, Malakoff has been the recipient of a number of awards and accolades for its contributions in various areas. Rather than being blasé or lulled into complacency, each recognition that we receive means a lot and has inspired us to achieve even more. In 2012, we were accorded five prestigious industry awards from international publications in recognition of our innovative financing facilities for the Tanjung Bin Energy Power Plant project. We are also extremely proud to be listed in the top 50 of Malaysia s Most Preferred Employer by a survey conducted at the 2012 Graduan Aspire Career & Postgraduate Fair, joining the ranks of some of the biggest companies in Corporate Malaysia. We also received Certificates of Appreciation from the Fisheries Department and Department of Marine Parks for our turtle conservation Initiative and our coral reef habitat restoration efforts respectively. With a business premised on service and customer satisfaction, we take pride that Malakoff Utilities Sdn Bhd was rated Number One in a 2012 Customer Survey, when we were ranked against seven other well-known utility and services companies. Outlook and Prospects A great deal of hard work has come to fruition in the past year. No effort was spared to strengthen the Group in almost every area of its performance. In corporate governance, we have formalised an Enterprise Risk Management (ERM) framework that provides a more integrated approach to proactively identify and manage risks. The risk management process goes through several levels but is ultimately the responsibility of the Board of Directors whose primary task is to review the Group s risk profile. During the year, we continued to enhance our framework with new ERM tools and enablers, including workshops, assessment processes and internal as well as external audits. The future is bright, but we have no illusions that we have our work cut out for us. There will undoubtedly be challenges but as demonstrated time and again, we are no stranger to challenges. Given our expertise, experience, people and with the right strategies in place, we are confident that we can achieve even higher levels of performance in the coming years. APPRECIATION The momentum we have achieved is the result of dedicated and enthusiastic employees who bring passion to their jobs. I believe we have the best people in the business. As a cohesive team, they are a personification of Malakoff s core corporate values. Our people are the ones driving the Group s success and we are not finished yet. In our transformation journey we were also fortunate to have had the cooperation and support of various quarters. We work closely with various government bodies and they have always been very supportive and generous with their advice. Our support group also comprises our respective financiers, partners and business associates and also the members of the media, with whom we have cultivated a cordial working relationship. Not least of all, we enjoy a healthy partnership with our stakeholders based on trust and understanding and this has contributed in no small measure towards Malakoff s success. I also wish to record my sincere appreciation to my fellow members of the Board. During the year, we saw the departure of Mr. Vijay Vijendra Sethu who was on the Board as an Alternate Director. In his place, Mr. Craig Robert Martin has been appointed as an Alternate Director to Mr. Andrew Rowan Ian Yee. We also saw the departure of Dato Azian binti Mohd Noh who was on the Board as a Director, on 18 March En. Zalman bin Ismail was appointed to take her place as a Director on the Board. We thank them for their contributions and wish them every success. The Board also saw the addition of three new Independent Non- Executive Directors, namely Tan Sri Dato Seri Alauddin bin Dato Mohd Sheriff, Datuk Idris bin Das Murthy and Datuk Dr. Syed Muhamad bin Syed Abdul Kadir. We look forward to benefitting from the broad experience they bring with them and their fresh insights. I thank all of you. DATO WIRA SYED ABDUL JABBAR BIN SYED HASSAN Chairman 032 Malakoff Corporation Berhad

35 033 Malakoff Corporation Berhad

36 RE: surgence In every step of its evolutionary stage, Malakoff surges ahead by rising to the moment of realising the Group s potential to unleash new levels of asset quality, and lay significant groundwork for the future of its corporate development.

37

38 Zainal Abidin Jalil Chief Executive Officer 036 Malakoff Corporation Berhad

39 Performance Review By Chief executive Officer OVERVIEW Despite the uncertainties of the global economy, the Malaysian economy has proven resilient. In 2012, Gross Domestic Product (GDP) growth has been projected at between 4.5 and 5.5 percent (Source : Economic Report 2012/2013) and the country remains on track towards achieving the aspirations encapsulated in Vision Given the positive correlation between GDP growth and electricity demand, this augurs well for Malakoff and the business we are in. Against this favourable economic backdrop, FY 2012 was another remarkable year of growth and achievement for the Group. This was reflected at almost every level. Operationally, the SEV, GB3 and Prai Power Plants were the star performers of the Group, achieving high availability and capacity rates. In a year that saw a nationwide shortage of gas supply, our coal-fired Tanjung Bin Power Plant played a pivotal role in meeting the country s power demand. FY 2012 was also a year that saw the Group continue to expand its portfolio of assets and pursue unfolding opportunities for new growth at home and abroad. Our Electricity and Chilled Water Distribution business has been rebranded and repositioned as another core line of business for the Group. Even as we continued to grow our businesses, we realised that the need to sharpen our competitiveness has never been so cogent. Even though we already have a good record of sustained high performance, we pressed ahead with a number of far-reaching initiatives to improve plant efficiency, reliability and availability. At the same time, we strengthened the support services provided by the O&M Department, Technical Support Group and our Procurement Unit. In the annual audit of three plants conducted by our external auditors and in other management audits, I am happy that we came through with flying colours with no significant untoward findings. The year under review also brought Malakoff its share of awards and accolades. It is particularly gratifying to find ourselves among an elitist group to be listed among Malaysia s Most Preferred Employer. We are also placing more emphasis on providing premier customer service and our efforts have paid off when our subsidiary was rated Number One in a customer survey. Re-energised and with the momentum established, Malakoff stands ready to embark on a new phase of growth and profitability. Generating Approximately 23% of power in Peninsular Malaysia Plants Delivered Combined 25,537 GWh of electricity to the National Grid 037 Malakoff Corporation Berhad

40 Performance Review by Chief Executive Officer (cont d) Asset Performance 038 Malakoff Corporation Berhad

41 Domestic power Generation Malakoff is the largest Independent Power Producer (IPP) in Malaysia with an effective power generation capacity of 5,020 MW, representing 22.5 percent of Peninsular Malaysia s totaled installed capacity. Our core power generation business consists of six power plants located in Peninsular Malaysia, of which four are owned by our subsidiaries with the other two owned by our associates. Of the four plants owned by our subsidiaries, three are combined cycle gas turbine (CCGT) plants (SEV Power Plant, GB3 Power Plant and Prai Power Plant) with the remaining one being a coal fired thermal power plant (Tanjung Bin Power Plant). Through our associates, we also have interests in one open cycle gas turbine (OCGT) plant (Port Dickson Power Plant) and one power plant equipped with multi-fuel generation facilities (Kapar Power Plant). We are now constructing a new coal-fired thermal power plant, the Tanjung Bin Energy Power Plant, which will have a capacity of 1,000 MW and is scheduled to begin commercial operations by 1 March Subsidiary-Owned Power Plants SEV Power Plant The 1,303 MW SEV Power Plant is located in Lumut, Perak and is the largest CCGT power plant owned by an IPP in Malaysia. Malakoff has a percent stake in Segari Energy Ventures Sdn Bhd (SEV), with the balance held by the Employees Provident Fund (EPF). During the year in review, the SEV Power Plant continued to deliver in terms of availability, reliability and efficiency. The plant delivered approximately 3,077 GWh of electricity to the National Grid, with an average capacity factor of about percent. Other key performance indicators include an availability factor of percent, exceeding the 86.0 percent threshold under the PPA signed with Tenaga Nasional Berhad (TNB). With all the prerequisite performance standards set out in the PPA fulfilled, SEV was able to receive full capacity payments for the year under review. In February 2013, our PPA for the SEV Power Plant due to expire in 2017, was extended by another 10 years. GB3 Power Plant The 640 MW GB3 Power Plant is located adjacent to the SEV Power Plant at Lumut, Perak. The plant is owned by subsidiary GB3 Sdn Bhd, in which we have a 75.0 percent interest, while TNB and EPF hold the remaining 20.0 percent and 5.0 percent equity stakes respectively. Now into its eleventh year of operation, the GB3 Power Plant delivered a total of 3,300 GWh of electricity to the National Grid in FY 2012, achieving an average capacity factor of approximately percent. The plant also achieved an equivalent availability factor of percent, an improvement from the previously recorded percent. Prai Power Plant The 350 MW Prai Power Plant is a singleshaft CCGT plant located at Prai, Pulau Pinang. The plant is owned by our 100 percent-subsidiary, Prai Power Sdn Bhd. Since commencing operations in June 2003, it is one of the most efficient natural gas-fuelled power plants in Malaysia, achieving a net efficiency (Lower Heating Value) of percent during the year under review. A total of 2,333 GWh of electricity was delivered to the National Grid in The plant also achieved an average capacity factor of percent, while its equivalent availability factor soared to percent, improving on the previous year s performance. Tanjung Bin Power Plant One of Malakoff s key assets is the 2,100 MW coal-fired thermal power plant located at Pontian, Johor. The plant is owned by Tanjung Bin Power Sdn Bhd (TBP), in which we hold a 90.0 percent stake, with the remaining 10.0 percent held by EPF. Utilising bituminous and sub-bituminous coal imported from Australia, South Africa and Indonesia, this is the first private coalfired plant in the country and accounts for approximately 29.0 percent of Peninsular Malaysia s IPP coal-fired generation capacity. It is also the largest independent coal-fired power plants in Southeast Asia and is installed with clean coal technology equipment such as an electrostatic precipitator and a flue gas desulphurisation unit that allows the plant to maintain the boiler emission levels within the limits set by the Department of Environment (DOE). 039 Malakoff Corporation Berhad

42 Performance Review by Chief Executive Officer (cont d) Backed by an impeccable track record, the O&M s expertise of the SEV, GB3 and Prai Power Plant has been well recognised and acknowledged by other plant operators in the country. The Tanjung Bin Power Plant is now into its seventh year of operation and in FY 2012, delivered a total of 14,571 GWh of electricity to the National Grid, achieving an average capacity factor of percent. Despite forced outages experienced at the plant during the year, the equivalent availability factor of percent was still an improvement from the FY 2011 performance. Tanjung Bin Energy Power Plant In June 2011, the Energy Commission of Malaysia awarded the project to construct a new 1,000 MW coal-fired power plant to Malakoff after a competitive bidding exercise. On 2 December that same year, our wholly-owned subsidiary, Tanjung Bin Energy Sdn Bhd (TBE) entered into a 25-year PPA with TNB on a build-ownoperate basis to develop, construct and operate the new plant, which is located adjacent to the existing Tanjung Bin Power Plant. When Tanjung Bin Energy Power Plant is commissioned in 2016, it will increase the Group s total generation capacity in Tanjung Bin to 3,100 MW, solidifying our position as the IPP with the largest coal-fired plant in Southeast Asia. A wholly-owned subsidiary of TBE, Tanjung Bin Energy Issuer Bhd (TBEI) is responsible for the development, construction and financing aspects of the new RM6.7 billion plant, of which approximately RM4.8 billion will be engineering, procurement and construction (EPC) costs. On 23 February TBEI signed an EPC contract appointing a consortium comprising Alstom Power Systems SA, Alstom Services Sdn Bhd, Shin Eversendai Engineering (M) Sdn Bhd and Mudajaya Corporation Bhd to undertake the design, engineering, procurement, construction, installation, testing, and commissioning of the Tanjung Bin Energy Power Plant. Upon completion, the operation and maintenance of the plant will be handled by Malakoff Power Berhad, a wholly-owned subsidiary of Malakoff. Construction work on the plant commenced on 1 March 2012, with the first concrete pouring ceremony held on 10 August With 21.0 percent overall completion achieved as end-december 2012, the plant is on track to meet its targeted commercial operation date of 1 March Malakoff Corporation Berhad

43 Associate-owned Power Plants Kapar Power Plant The Kapar Power Plant, also known as the Sultan Salahuddin Abdul Aziz Power Plant, is the largest power plant in Malaysia with a total generating capacity of 2,420 MW. Malakoff s interest in the Kapar Power Plant is through our 40.0 percent equity stake in Kapar Energy Ventures Sdn Bhd, with the remaining 60.0 percent equity held by TNB. Located at Kapar in the state of Selangor, its multi-fuel power generation facilities consist of the following: Generating Facility 1 (GF1) : 2x300MW Dual-Fuel Firing (Gas and Oil) Generating Facility 2 (GF2) : 2x300 Triple-Fuel Firing (Coal, Gas and Oil) Generating Facility 3 (GF3) : 2x500MW Dual-Fuel Firing (Coal and Gas) Generating Facility 4 (GF4) : 2x110 MW OCGT During the year under review, the plant achieved the following availability factors, efficiency levels and capacity factors for the respective generating facilities as set out in the table below: Generating Facility Avail. Factor % Efficiency % Capacity Factpr % GF GF GF GF Like the Tanjung Bin Power Plant, clean coal technology equipment have been installed in the coal-fired boiler units (GF2 and GF3). This has enabled the boiler emission levels to meet the limits set by the DOE. Port Dickson Power Station Our wholly-owned subsidiary, Hypergantic Sdn Bhd, has a 25.0 percent stake in Port Dickson Power Berhad, which owns the 440-MW OCGT power plant located at Port Dickson, Negeri Sembilan. The plant supplies electricity to the National Grid to meet peaking and emergency requirements. For the past 16 years, the Port Dickson Power Plant has chalked up an outstanding performance, sustaining an exceptionally high availability factor of 99.0 percent, forced outage of less than 0.2 percent and commercial starting reliability of close to percent. INTERNATIONAL WATER PRODUCTION AND POWER GENERATION Shuaibah Phase 3 Independent Water and Power Project (Saudi Arabia) The Shuaibah Phase 3 Independent Water and Power Project (IWPP) located near Jeddah in the Kingdom of Saudi Arabia is Malakoff s first overseas investment. Our interest in the project is held through our 12.0 percent stake in an associate company, Shuaibah Water & Electricity Company Limited (SWEC). The project consists of a 3x300 MW light crude oil-fired power plant and an 880,000-cubic metre per day Multi- Staged Flash Distillers unit for the desalination of sea water. Since the commencement on 14 January 2010, the plant has continued to perform commendably, achieving a high availability factor of percent for power generation and percent for water production during the year under review. Shuaibah Phase 3 Expansion Independent Water Project (Saudi Arabia) Malakoff also holds an 11.7 percent effective stake in Shuaibah Expansion Project Company Limited (SEPCO) which owns the Shuaibah Phase 3 Expansion Independent Water Project (IWP). The 150,000-cubic metre per day plant uses reverse osmosis technology to desalinate sea water. Commercial operations commenced on 17 November 2009 and the plant has continued to record a good performance with an availability factor of percent for the FY The Shuaibah Phase 3 IWPP and the Shuaibah Expansion IWP together form the largest independent water project in the MENA region. 041 Malakoff Corporation Berhad

44 Performance Review by Chief Executive Officer (cont d) Souk Tleta IWP (Algeria) The Souk Tleta IWP project in Algeria is Malakoff s maiden foray into North Africa. The project is owned by Almiyah Attilemcania SPA, a joint-entity in which we have a 35.7 percent stake through our wholly-owned subsidiary, Malakoff International Limited (MIL). Under a 25-year concession expiring in April 2036, the 200,000-cubic metre per day plant supplies water to Algeria s national water company, L Algerienne Des Eaux and national oil and gas company, Sonatrach (Societe Nationale pour la Recherche, la Production, le Transport, la Transdormation, et la Commercialisation des Hydrocarbures s.p.a). The year under review marked the plant s second year of operation. Owing to unforeseen problems due to stormy weather and resulting higher suspended solids in the seawater intake, the plant only achieved a lower-than-targeted availability factor of percent. Malakoff is investing a lot of effort to overcome the teething problems and the expectations are for a better performance in FY Al Hidd Power Generation and Water Desalination Plant (Bahrain) In May 2012, Malakoff concluded US90.0 million financing arrangements to purchase a stake in Bahrain s largest independent power generation and water desalination plant. Our 40.0 percent effective stake in the Hidd Power Company BSC, which owns the Hidd IWPP, is the largest equity held by the Group to date in any international asset. The Hidd IWPP consists of three phases with a total power generation capacity of 929 MW fuelled by natural gas and a water production capacity of 410,000 cubic metres per day. For the year under review, the plant recorded an availability factor of percent and percent for power generation and water production respectively. Al Ghubrah IWP (Sultanate of Oman) In November 2012, we were informed by the Tender Board of the Sultanate of Oman, that the consortium led by MIL has been selected to undertake the design, construction, ownership, financing and operation and maintenance of the Al Ghubrah IWP, located in the capital city of Muscat. The IWP is to be developed on a build, own and operate basis. Utilising reverse osmosis technology, the plant will have a net desalination capacity of 191,000 cubic metres per day and will supply water to the Oman Power and Water Procurement Company S.A.O.C. over a term of 20 years, vide the Water Purchase Agreement entered into between Muscat City Desalination S.A.O.C. and the Oman Power and Water Procurement Company S.A.O.C. signed on 11 February Commercial operations date has been targeted for October Central Electricity Generating Company Limited (CEGCO) Power Generation Plants (Hashemite Kingdom of Jordan) CEGCO has four major power plants and is the largest power generation company in Jordan. We are continually reviewing our asset portfolio and in May 2012, Malakoff divested its percent stake in the CEGCO. 042 Malakoff Corporation Berhad

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46 Performance Review by Chief Executive Officer (cont d) Operation & Maintenance 044 Malakoff Corporation Berhad

47 Domestic O&M BUSINESS During the year under review, Malakoff continued to make headway in developing its O&M business. The Group has two decades of experience in the business, going back to 1993 when Teknik Janakuasa Sdn Bhd (TJSB) was incorporated as an engineering services company specialising in providing O&M services for the power generation sector. The Group s O&M platform was further strengthened in 2004 when it acquired the remaining 49.0 percent stake in Natural Analysis Sdn Bhd (NASB). In December 2012, Malakoff acquired HICOM Power Sdn Bhd along with the contractual rights to provide O&M services to the Tanjung Bin Power Plant. Throughout FY 2012, TJSB continued to provide support and expertise to the Group. By investing in the latest O&M tools and methodologies such as Reliability-Centred Maintenance (RCM), Root-Cause Analysis (RCA) and Risk-Based Inspection (RBI) and drawing on the expertise of its Technical Support Group, TJSB ensures that assets are not only managed and maintained effectively but are also cost-effective. Over the years, TJSB has also gained increasing recognition as a reputable trainer in the power generation and related services sector, including the provision of simulator training courses. At year-end 2012, TJSB s client base not only comprised the Group s own power plants, but has expanded to include power and water plants owned by certain of our associates, our jointlycontrolled entity and third party clients. In December 2012, Malakoff had undertaken internal rationalisation of the structure of the Group. The rationalisation exercise involve the incorporation of Malakoff Power Berhad (MPower) as a wholly-owned subsidiary and the segregation of the Group s domestic and foreign O&M businesses. The domestic O&M business of TJSB and NASB was transferred to MPower, while the TJSB International Group of companies will offer O&M services to certain of our associates, our jointly-controlled entity and third-party clients overseas. SEV and GB3 Power Plants The SEV and GB3 Power plants are co-located in a single complex known as the Lumut Power Plant. Despite a nationwide shortage of gas supply during the year under review, the SEV and GB3 Power Plants continued to fulfil their contractual obligations delivering 3078 GWh and GWH to TNB respectively. During One of our finest enduring achievements, Tanjung Bin Power Plant is the first private coal-fired power plant in Malaysia, and one of the largest independent coalfired power plants in Southeast Asia. intermittent periods of gas supply shortages, the plants operated on distillate fuel, which contributed to a production of 236 GWh for SEV and 279 GWh for GB3. To sustain our high performance levels, all of the Group s power plants have long-term operations and maintenance plans that require scheduled inspections and overhauls, including scheduled periods of outages that are established to accommodate the plant s despatch requirements. In order to achieve the Lumut Power Plant s high reliability and availability targets, the following measures were taken in 2012: Several plant improvement projects were implemented during the year. In the SEV plant, these included among others, an automated GT ignition mass flow to improve unit start up and pre-synchronised online TAT spread monitoring for start-up FDI mitigation. Improvement projects at GB3 included a new automatic continuous blowdown controlling scheme for boilers and PI-based Online Performance Test Net Corrected Output Programmer. 045 Malakoff Corporation Berhad

48 Performance Review by Chief Executive Officer (cont d) Major maintenance and inspection activities using the latest O&M tools and methodology (RCM, RCA and RBI) were also conducted at various gas turbines, compressors and other equipment. To sustain a high competency level among operators, a Gap Analysis exercise was carried out to determine the shortcomings which provided the inputs for action plans to be drawn up to address their deficiencies. The Lumut Power Plant has also successfully extended its accreditation to OHSAS 18001:2007 and MS 1772 Occupational Health and Safety Standards certifications. A Surveillance Audit on MS ISO 9001 Quality Management System (QMS) and ISO Environmental Management System (EMS) was also completed during the year in review. Prai Power Plant The Prai Power Plant is operated using a unique Single-Shaft Combined Cycle power train, which allows for a reliable, efficient and low-emission power supply to the National Grid. A maintenance outage was undertaken in March last year, when the Gas Turbine Stage 1 rotating blades were replaced. To improve thermal efficiency, off-line cleaning works were carried out on the gas turbine compressor during three days of scheduled outages in July and November. The Prai Power Plant successfully completed its re-certification to MS ISO 9001 QMS, OHSAS 18001:2007, MS 1722:Part Occupational Health and Safety standards and also the Environmental Management MS ISO 14001:2004. The year in review also saw the implementation of various safety improvement initiatives, and with the total support of management and staff, Prai Power Plant successfully upheld its excellent safety performance, with no Loss Time Injury (LTI) incidents recorded since it began commercial operations in Tanjung Bin Power Plant In the face of a nationwide shortage of natural gas to fuel gas-fired plants, the Group s coal-fired Tanjung Bin Power Plant played a pivotal role in ensuring stability of supply of power to the National Grid. During the year under review, the total volume of coal delivered to the plant increased to million metric tons, of which million metric tons were consumed as fuel for power generation. Despite having to cope with a higher despatch level, the plant s first scheduled major inspection was carried on the stream turbine, boiler and associated auxiliaries at Unit 2. During this inspection completed 046 Malakoff Corporation Berhad

49 in December, defective boiler tubes were replaced, while repair works were undertaken on major valves and other equipment. A similar inspection and repair programme has been planned for Units 1 and 3 in the coming financial year (2013). Among plant improvement projects that were initiated during the year, they included among others, the installation of a pulsematic air horn in the Electrostatic Precipitator to further enhance the flue gas cleaning system and the installation of thermocouples to closely monitor the temperature profile in the boiler in order to optimise the combustion system. To enhance the information security system, the plant has earned certification to the MS ISO/IEC 27001:2007 Information Security System. It has also been recertified to MS ISO 9001 QMS, OHSAS and MS 1722 Occupational Health and Safety Standards. INTERNATIONAL O&M BUSINESS Malakoff s involvement in the international O&M business dates back to 2006, when TJSB was awarded an O&M sub-contract for the Shuaibah Phase 3 IWPP. This was followed by other O&M contracts for the Souk Tleta IWP in Algeria, major overhaul work of Alstom gas turbine 13DM in the Kingdom of Bahrain and the Azzour Emergency Power Plant in Kuwait, where TJSB secured a 5-year Operation and Maintenance Management Services (OMMS). TJSB s International O&M Portfoilo In line with Malakoff s strategy to make further in-roads into the international marketplace, TJSB formed part of a consortium that has submitted a bid to participate in the Azzour North IWPP project in Kuwait. The project calls for the development of what will be Kuwait s first IWPP, which will have a capacity of 1,500 MW of power and 454,600 cubic metres per day of desalinated water using thermal technology. 047 Malakoff Corporation Berhad

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51 RE: solve A new dawning brings forth the revival of investments, one that has the ability to extend and restore Malakoff s potential for greater utilisatison of resources, to raise its standings and standards of interests, and to resolve its objectives.

52 Performance Review by Chief Executive Officer (cont d) Electricity Distribution and Chilled Water Supply Our wholly-owned subsidiary, Malakoff Utilities Sdn Bhd (MUSB) {formerly known as Wirazone Sdn Bhd}, was launched on 23 November 2012 as an integral part of a rebranding strategy and to reposition the Group s electricity distribution and district cooling business as another core line of business. MUSB has been licensed by the Energy Commission to distribute electricity to all the buildings in the Kuala Lumpur Sentral Development (KL Sentral) on an exclusive basis. MUSB has a customer base of 1,660 accounts as at year-end Power demand within the development enclave rose to 31.2 MW in 2012, the highest level to date. MUSB already has a proven track record as a reliable supplier of chilled water, having supplied chilled water to the Plaza Sentral Office Towers since November In June 2012, MUSB signed a Chilled Water Supply Agreement with three developers of mixed property projects in KL Sentral. To meet the growing needs, MUSB has increased its current Centralised Chilled Water Plant s capacity to 17,000 Refrigerant Tons (RT) from the current 7,000 RT. The plant has also been converted to employ the latest Thermal Energy Storage technology, which will improve energy efficiency whilst reducing the environment impact of our operations. This will also enhance KL Sentral s standing on the Green Building Index, a rating tool used to promote sustainability. From our early involvement in the business, Malakoff has established a reputation for the continuous availability and reliability of its electricity distribution business. During the year we undertook a customer satisfaction survey to gauge our position between ourselves against seven other utility and service providers to ascertain where MUSB stood from the technical, billing and customer care perspective. It is gratifying to learn that we are indeed on the right track in our efforts to continually improve our performance. 050 Malakoff Corporation Berhad

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54 Performance Review by Chief Executive Officer (cont d) Ventures 052 Malakoff Corporation Berhad

55 PROJECT MANAGEMENT Through a wholly-owned subsidiary, Malakoff Engineering Sdn Bhd (MESB), the Group provides project management services. Having taken on the project management of the SEV, GB3 and the Tanjung Bin Power Plants, MESB has vast project management expertise in the execution of EPC contracts for plants, managing the relationships with engineers and the relevant authorities to ensure that the project is completed on time and within budgeted costs. MESB is currently the project manager of the Tanjung Bin Energy Power Plant, currently under construction. VENTURES DIVISION Throughout our transformation journey, our over-riding goal has always been to provide long-term growth for our stakeholders. We believe that carefully planned investments today will enable the Group to reap the benefits to come and our Ventures Division is always exploring fresh paths to growth at home and abroad. Ventures I Having achieved financial closure on 29 February for the development of the 1,000 MW Tanjung Bin Energy Power Plant and with the project having taken off, Ventures I has now set its sights on new business opportunities unfolding in Malaysia and the Southeast Asian region. Ventures I is also closely monitoring announcements by the Energy Commission to replace the capacity of older TNB and IPP plants that are being phased out between 2015 and 2017 in order to cater for new demand. The next round of tender has been rolled out in December for the development of a coal-fired power plant. Ventures II The focus of Ventures II is on the MENA region where the Group has already established a foothold. As reported earlier, we participated in an internationally competitive tender exercise and were eventually awarded the contract by the Tender Board of the Sultanate of Oman to undertake the development and construction of the Al Ghubrah IWP. Securing the Al Ghubrah project signals the Group s re-entry into the Sultanate of Oman and is also testimony to the Group s standing in a very competitive business. Six international consortia made it to the pre-qualification stage for the Al Ghubrah project, but only five submitted their bids. GREEN TECHNOLOGY INITIATIVES With its abundant natural resources, the Malaysian Government recognises that renewable power solutions may well be the way forward if the country is to avoid becoming a net fuel importer over the 30 years. Moreover, going green can help reduce nationwide carbon emissions and improve the quality of life in the rural areas by making available electricity at affordable rates. In 2011 the Government introduced a new feed-in tariff to promote the development of renewable energy as a source of power generation. We need to take a long-term view of our businesses, anticipating trends and attuning ourselves to capitalise on the businesses of tomorrow. In this regard, Malakoff has launched its Green Technology Initiative (GTI), which outlines our strategy to build a renewable power generation portfolio, locally and overseas, of 300 MW by the year Malakoff has already identified several renewable energy projects of interest in Malaysia and during the year in review, our efforts were channelled towards: Exploring the feasibility of developing biogas and biomass plants at palm oil mills in Johor Conducting a feasibility study for a Waste-to-Energy proposal in Johor and Kuala Lumpur Identifying potential small-scale hydro sites in Sabah and Perak Exploring potential sites for the development of a solar farm in Peninsular Malaysia 053 Malakoff Corporation Berhad

56 Performance Review by Chief Executive Officer (cont d) Internationally, Malakoff was also actively engaged in various projects to assess the viability of using wind technology for power generation at potential sites in Pakistan and Turkey. In Sri Lanka, we are looking at the viability of converting municipal waste into energy. While looking to the future, we are always cognizant that the viability of these renewable energy projects must be studied carefully, taking into account the technical and economic aspects as well as any inherent risks in undertaking such projects. TECHNICAL SUPPORT GROUP Behind the scenes, the Technical Support Group (TSG) continued to play a key role in supporting the Group s O&M activities both within and outside Malaysia. TSG is continually looking at ways to improve the services it provides, and in FY 2012, specialised teams were set up. Each team has its own particular area of expertise, related either to a particular facility or technology used in the plant. In the light of the Group s increased participation in water production projects, TSG has strengthened its Water Technology Team. TSG has also contributed in no small measure towards overall plant improvement. For instance, TSG s integrated outage management and cost optimisation initiatives have contributed towards considerable cost savings for several major overhauls carried out in the Lumut Power and Tanjung Bin Power Plants. During the year, TSG continued to participate in various technical studies, assessment and technical audits, such as the Operation Risk Assessment Audit at Tanjung Bin Power Plant, Engineering Risk Assessment Exercise at the Lumut and Prai Power Plants, and RCM studies for the Prai and Tanjung Bin Power Plants. Among TSG s external clients, a Technical Audit was undertaken for the Dhofar Power Company in Salalah, Oman, TSG also provided technical support to the Group s O&M teams at the Azzour North IWPP and Souk Tleta IWP. TSG also played an active part in supporting the Group s bid for new O&M projects such as the 1,000 MW Prai Power Plant, 1303 MW Lumpur Power Plant PPA extension and the 778-MW Shuaibah North CCGT Plant in Kuwait. PROCUREMENT PRACTICES In supply chain management, the effective management of the procurement process is critical to the success of the Group s O&M business. Managed properly, it ensures that all capital expenditures (CAPEX) are accounted for and day-to-day operations are not disrupted for the simple reason that materials and services are not available. For an effective management of the procurement process, rules, policies and procedures have been drawn up and must be adhered to diligently. All transactions must be transparent and employees involved in the procurement process must always put the interest of the Company above all other considerations. Internal audits and other management audits such as ISO 9001, and OHSAS are important yardsticks to determine how we fare against internationally accepted practices. Any nonconformance has to be taken constructively while recommendations should be carefully considered for implementation. With the establishment of a Group Contract and Procurement unit under TJSB, our procurement team has played an important role in assisting the relevant divisions within the Group on matters concerning the procurement process, giving the necessary advice and recommendation objectively. Whenever a plant is left idle, it means a loss of revenue. During periods of planned outages, some of which are back-to-back, it is important that schedule should be strictly followed so that the plant start-up can begin in a timely manner. Our procurement people have so far proven that they are up to the task in providing the necessary support. Last year, we met the target of meeting at least 80.0 percent of the CAPEX requests despite the high volume of requests received and the number of backto-back planned and unplanned outages at the plants. 054 Malakoff Corporation Berhad

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58 Performance Review by Chief Executive Officer (cont d) During the year, key initiatives were also launched to expedite the procurement processes. In April 2012, the Vendor Document and Management Portfolio was implemented, and although it is early days yet, it has already been proven effective. In managing the procurement process, one of the most important areas is cost leadership or cost savings. By purchasing as a Group, TJSB has managed to register a cost saving of more than RM3.0 million on materials and services purchased in 2012, and another RM4.2 million by way of tax and duty exemptions. Other new initiatives already identified and will continue into FY 2013 include the following: Reviewed and identified stock items, together with Maintenance Team, that require preservation to ensure spare parts or inventories are in good and usable condition. This consequently saved purchasing cost by not having to purchase new spares Review stock movements with the maintenance team to plan the next best course of actions Review existing Group Procurement Procedures to make it more meaningful and process friendly, without compromising on transparency and quality Review and identify common materials and services across the plants for consolidated purchase. These enabled us to get better price based on bigger volume purchases with standard Terms & Conditions across the plants INFORMATION TECHNOLOGY In the 21st Century, Information Technology or IT has permeated almost every aspect of the way we live, play or conduct our businesses. The power of IT has been harnessed by the Group to enable our assets to perform at optimum levels to attain the desired results. Improving efficiency at all levels of operations remained a key focus for the year in review. We continued with efforts to automate manual forms and processes, migrating to the Microsoft Sharepoint platform, which is a new way of document management. The platform also facilitates project collaboration, milestone tracking and managing correspondence. We have also embarked on Business Continuity Planning (BCP) as an important part of Group strategy to build resilience to internal or external threats that may disrupt our business. BCP will continue to be an ongoing initiative and tests are conducted regularly to ensure readiness. We are also gearing up to be certified to the Information Security Management System (ISMS) from the Standard and Industrial Research Institute of Malaysia (SIRIM). ISMS certification is mandated by the Government for all organisations that fall under the Critical National Information Infrastructure classification. We expect certification to be awarded by the first quarter of Malakoff Corporation Berhad

59 The coming year will see the roll-out of more IT initiatives, including the evaluation of Cloud Technology, a business process platform that is increasingly tapped by organisations to stay competitive in today s business environment. By leveraging on Cloud Technology, we hope to realise a number of benefits, which include among others, a reduction in the investment of servers and maintenance costs. OCCUPATIONAL SAFETY AND HEALTH Occupational Safety and Health (OSH) are two sides of the same coin, and with so much at stake, there can neither be complacency nor compromise. Even as we grow our businesses, our standing in these two areas is regarded as a leading indicator of the Group s overall performance. That is why we are continually striving to make Malakoff a safer and healthier place to work. OSH is everybody s concern at Malakoff, with top management leading by example. All levels of management promote and encourage safety at work as productive business practices. Subscribing to the old adage that prevention is better than cure, a raft of preventive measures has been drawn up and strictly enforced throughout the Group. World class standards and best practices have been adopted and these have been reinforced by a proactive internal reporting and monitoring system. We recognise that people are the most important factor in significantly improving safety performance and our employees undergo annual evaluations to gauge their knowledge on OSH matters. Our employees and contractors also participate in training programmes related to the Occupational Health and Safety Act, which include permit-to-work modules. During the year, we extended our commitment to raising standards with the introduction of a Behavioural-Based Safety Programme, which uses a research-supported intervention strategy to achieve changes in behaviour and attitudes towards safety. Despite all our efforts, work-related accidents in 2012 resulted in 0.28 Lost Time Injury (LTI) per million working hours, which is a slight improvement from 1.1 recorded in Even though we are on the right track towards improving our safety performance, we will continue to work hard to achieve our goal of an injury-free environment. We will settle for nothing less than zero LTI. It is an obligation we owe ourselves and our employees. ACKNOWLEDGEMENTS Committed and hard-working employees are a vital component of any successful company. Our people are remarkable for their diversity of talents, their energies, professionalism and their commitment to the enduring values that have made Malakoff so successful. I want to thank all of you for contributing so effectively to our transformation journey. As we journey towards another phase of our ongoing transformation, we are confident that we can build upon the strong foundations that have been laid to achieve even more. More than ever before, our people will be playing an active part in shaping the future. Thank you. ZAINAL ABIDIN JALIL Chief Executive Officer 057 Malakoff Corporation Berhad

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61 RE: sult The glowing light of confidence emanates positively on Malakoff as a company recognised for its innovative leadership, with the consistency of its proven business direction that will have the means and magnitude to deliver greater results.

62 Corporate Responsibility Our vision to be a leading Malaysian multi-national power company can only be premised on growth with equity. In a new era of enlightenment, merely pursuing corporate goals would not be sustainable. The fruits of our success must be inclusive, and for this reason, Corporate Social Responsibility (CSR) has been embraced as an essential part of our business strategy, providing the Group with a sustainable base for future earnings and operations. Taking our direction from Bursa Malaysia s CSR Framework, Malakoff s CSR programmes and activities rest on four main pillars : Community Development, Workplace Development, Marketplace Development and Environmental Preservation. The Malakoff Community Partnerships was established in 2009 as the Group s CSR platform to streamline the Group s ongoing and future CSR programmes. Its Advisory Panel is headed by the Chairman of Malakoff, and includes external members who are experts in various relevant fields to provide a more holistic and progressive oversight. Their guidance and counsel ensures that our CSR programmes are not only meaningful but are relevant to the needs of the community. COMMUNITY DEVELOPMENT Malakoff has a long tradition of giving back to the community. In recognition of our efforts over the years, we have been the recipient of many accolades, awards and letters of appreciation. For FY 2012 alone, our CSR budget amounted to RM4.0 million, which was disbursed either as one-off donations or channelled towards supporting our long-term projects. Under the Malakoff Community Partnerships, we championed more than 20 initiatives during the year, fulfilling our commitment in the following areas : Community and Education; Environment; and Community Sports. Community & Education Education is the key to success in today s competitive environment. To give Malaysian school children a head-start, we established an Education Fund in 2002 to support 10 schools we had adopted in the vicinity of our plants located in Lumut, Prai and Pontian. During the year, our adopted schools received RM200,000.00, which was used to upgrade academic facilities, organise revision classes as well as to provide incentives for top achievers in public examinations. Apart from financial support, we also organised various educational programmes. High achievers from ten schools were treated to a three-day excursion to Kuala Lumpur as part of our Learning Beyond the Classroom initiatives. Organised for the twelfth time, Malakoff has invested close to RM1.0 million to sponsor this initiative since 2001, benefitting more than 1,480 students from our 10 adopted schools. During their stay in Kuala Lumpur, students had the opportunity to have fun while expanding their knowledge visiting places such as Kidzania, Petrosains, Pusat Sains Malaysia and High 5 Bread Museum. Following its resounding success, we have also extended our Program Melentur Buluh to Sekolah Kebangsaan Seri Sinaran Chokoh to foster positive values among the students. As another important initiative of our community outreach programme, we donated RM100, to the Women s Aid Organisation to help supplement the operating costs of the shelter home. Funding was also provided for computer and English language classes so that single mothers and abused women seeking refuge at the home could have the necessary basic skills to enter the job market. Malakoff has also long been associated with the promotion of sports and in FY 2012, we organised two sports-cum-charity events. At the 7th Annual Malakoff Charity Ride held on 4-6 May, our business partners helped raise RM206, to benefit 21 welfare organisations and schools in Negeri Sembilan, Melaka and Johor. Malakoff ushered in 2013, with the Malakoff Interstate Fellowship Ride, which saw the participation of 1,100 participants who cycled a distance of 260 kilometres over two days. The event raised RM50, for two worthy causes. 060 Malakoff Corporation Berhad

63 One of the most important aspects in implementing our CSR initiatives and programmes is the active involvement of our staff. We believe that CSR should not merely come from the corporate cheque book, but must come from individual hearts as well. In this respect, volunteerism is alive and thriving within the Malakoff Group. Continuing a tradition that began six years ago, employees of the Group along with their family members turned up in force on 7 April for the annual gotong royong project at the Maahad Tarbiyah Islamiyah Al-Ansar charity home near Kuala Selangor. The home currently houses 230 people, aged between 8 and 50. These are children living at the fringes of society with no homes or families to turn to. During the time spent there, our staff and families helped refurbish and repair dormitories, prayer rooms and other facilities. Gotong royong is deeply ingrained in Malaysian culture, and Malakoff is pleased to do its part to keep this tradition alive. In our efforts to build communities, our employees have not been left out. We have always acknowledged the contributions of our employees to the Group s success. At the Sports Carnival and Grand Dinner held in Penang on 8 and 9 June, 127 longserving employees received cash awards totaling RM336, as a token of the Group s appreciation. At the same event, we also awarded RM each to 25 children of the Group s employees for having excelled in public examinations. Environmental programmes The first phase of the Malakoff Project Sunshine was completed as planned. Project Sunshine aims to promote awareness of renewable energy among students in line with the nation s Green Agenda. The project involves the installation of a grid-connected photovoltaic system in selected schools to enable solar energy to be generated for the premises. For a start, the year under review saw the 5kWh photovoltaic systems installed in three schools in Alor Setar, Kuala Lumpur and Petaling Jaya. Project Sunshine will eventually include more schools throughout the country. In the meantime, information packs have been disseminated while onthe-ground programmes have been planned for Organised in collaboration with Universiti Teknologi Malaysia, the second Eco Run was held on 25 November, attracting a total of over 1,300 participants. The Eco Run has a dual objective: while promoting a healthy and active lifestyle, it also advocates the importance of environmental conservation. We also strive to promote environmental awareness through knowledge-sharing platforms and on 22 March, Malakoff organised the fourth Energy Expert Series in collaboration with the Sustainable Energy Development Authority (SEDA) Malaysia. The latest series saw the attendance of almost 200 participants, comprising industry players, policy makers and members of the media. Another environmental initiative that has made a difference is our participation in the Coral Rehabilitation and Education Project aimed at conserving the marine eco-system in Monkey Bay, Pulau Tioman. Malakoff contributed RM100, for the development of coral nurseries to propagate corals which were subsequently replanted at reefs around the island to rehabilitate the damaged habitats. About 60 Malakoff employees and our business associates were actively involved in the replanting efforts over a period of three days. For the second year running, we also championed the cause of the endangered Olive Ridley and Green turtle population under the Kenali Penyu, Sayangi Penyu campaign. Since the future of our dwindling turtle population lies in the hands of the younger generation, our schoolchildren must be made aware of their plight and we are channeling efforts and resources on educating them. Over and above our own programmes, Malakoff also contributed RM10, cash and another RM25, for turtle tracking transmitters to the Perak Fisheries Department to assist in its turtle conservation efforts. This is in addition to the RM50, that was spent on the awareness programme. On 12 December, the Group renewed its partnership with a contribution of RM100,000 to the Johor National Parks Corporation to extend our commitment to the Save Our Mangrove initiative for another year. To date, Malakoff has successfully replanted some 37,000 saplings in Serkat, Pontian, Tanjung Piai and Kukup Island National Parks. 061 Malakoff Corporation Berhad

64 Corporate Responsibility (cont d) Development of community sports Malakoff has always been closely associated with the development of community sports. This was confirmed in a media dipstick audit conducted in 2012, where respondents correctly identified sports as a key focus of the Malakoff Community Partnerships. Besides inculcating a healthy lifestyle, we also believe that through sports, we can help foster a competitive spirit, engender teamwork and camaraderie, which are the bedrock elements of success. Contributing to the vibrant running scene in Malaysia, Malakoff continued its sponsorship of the Run with Family themed events. This includes the 17 and 7 km Malakoff Penang Run and the 12 and 7 km Kuala Lumpur Run. The sixth edition of the Penang Run was held on 25 March attracting 1,500 runners from all over Malaysia and on 16 December, more than 3,200 runners took part in the Kuala Lumpur Run. We also continued to promote the sport of duathlon in Malaysia. For the uninitiated, duathlon is an athletic event that consists of a running leg, followed by a cycling leg and then finishing off with another running leg. Unlike triathlons, the swimming leg is omitted. The inaugural Malakoff Powerman Asian Duathlon Championship, sponsored by Malakoff, took place on 4 November. It is an upgraded version of Powerman Malaysia, which Malakoff has been sponsoring for the last ten years. It has grown to become a world-class sporting event, attracting a record participation of 1,859 professional duathletes from close to 30 countries. This event is also the only Asian qualifier for the annual Powerman World Championships held in Zofingen, Switzerland. Malakoff also sponsored the shorter Malakoff University Duathlon Series to encourage young athletes to take up the sport. The sixth edition of the 3-legged event was kicked off at Universiti Malaya on 12 May, which hosted the first leg. Universiti Putra Malaysia hosted the second leg on 19 May, while the honour of hosting the grand finale on 26 May was given to Universiti Pertahanan Nasional Malaysia. We also flagged off the inaugural Half Century Ride on 18 November. This event brought together close to 200 participants who covered a 50-mile route around the scenic district of Manjung in Perak. WORKPLACE DEVELOPMENT Many corporations claim that their employees are their greatest assets. At Malakoff, we walk the talk and we demonstrate this by continually striving to be a better employer. Talent Attraction Attracting the right talent with the right competencies is critical if we are to achieve all we have set out to do. Fresh graduates from institutions of higher learning and technical staff are recruited through our Executive Development Programmes and Technician Development Programmes. The new recruits are carefully nurtured via a structured training programme combined with hands-on experience to expose them to all aspects of the Group s business and operations. To ensure we attract the best the market has to offer, we are actively engaged with student associations, student affairs bodies and resource centres such as Graduan and Talentcorp Malaysia. On average, we have been recruiting between 30 and 40 fresh degree and diploma graduates. Training and Development Employees with the right skills and competencies are vital to the ongoing success of our business. Each year a comprehensive training curriculum is drawn up to equip staff at all levels with the technical, commercial and business skills required to perform their tasks effectively. For FY 2012, for the development of soft skills alone, Human Resource (HR) has set aside a budget of RM4.5 million, an increase of 10.0 percent from the previous year. This translated into a total of 239 soft-skill training programmes for the year. Given the nature of our business, a large part of our training effort is focused on developing the technical skills of our O&M personnel, who make up approximately 80.0 percent of the Group s workforce. The Group invested nearly RM7.0 million for technical training and development programmes involving a total of 5,000 training manhours. These programmes involved on-the-job training, plant simulation exercises as well as classroom training, at the end of which a comprehensive assessment was carried out by our Technical training team. These courses have been specifically tailored to equip employees with the requisite knowledge and expertise to operate and maintain our plants effectively. Similar programmes were also offered to external parties. 062 Malakoff Corporation Berhad

65 Leadership Development and Succession Planning Key top management personnel were given the opportunity to attend targeted and intensive leadership enhancement programmes at world-renowned business schools such as the Harvard Business School (USA), International Institute for Management Development (Switzerland) and the Wharton School of the University of Pennsylvania (USA). Besides benefitting from the programme content, which focused on professional and business acumen development, attendance at these courses provided our top management the opportunity to network and exchange views with their counterparts from other organisations all over the world. We continued to drive our succession planning programme to ensure that should the need arise, there will be a ready pool of talent to take up key leadership positions across the Group. The first batch of trainees who participated in the Leadership Development Programme and the Senior Leadership Development Programme graduated in February and November 2012 respectively. An eclectic approach to talent development has been adopted in these programmes, which includes job assignments, stretch assignments, cross-divisional projects and active coaching and mentoring. These were supplemented by well-known speakers who imparted their knowledge and experience in their respective areas of expertise. The Group is also formalising an Individual Development Plan (IDP), which involves a supervisor and employee coming together to identify the specific knowledge and skills needed for a particular position and those possessed by the employee so that a plan could be formulated to close the competency gap. The IDP process provides an ideal win-win platform for the attainment of both organisational and personal development goals. Equitable Pay Structure Management has also embarked on a project to review the Grading and Salary Structure in place to ensure that job grades are relevant and consistent while the remuneration structure remains competitive with market rates, particularly those within the power industry. The first task at hand was to obtain a comprehensive and updated job description for all positions within the Group. This would support key HR processes such as recruitment, performance management, training and development and will also be used as input to evaluate a job position to determine the job grades using the Hay methodology or points system. The job evaluation project has been planned for completion by mid Employee Engagement Employee engagement has gained increasing prominence as a business management tool. According to one definition, an engaged employee is one who is fully involved and enthusiastic about their work and will thus act in a way that furthers their organisation s interest. Following an engagement survey conducted in 2011, focus groups were formed in all divisions and plants, the objective being to identify key issues that are affecting our employees level of engagement and the necessary actions that could be taken to address them. The feed-back received from the focus groups has served as input for an action plan. At Malakoff, we also have the non-formal channels of employee engagement. Each year, the Annual Dinner, Buka Puasa and Hari Raya Gatherings are much anticipated events on the calendar. We also consider ourselves a sporting corporation and many sports events are organised so that our people can pit their skills against one another. It is at these social gatherings or over a cup of teh tarik at the cafeteria, that management and staff can get together in a convivial setting, and establish the camaraderie and teamwork that goes a long way towards achieving common goals. Nurturing Our Young We believe that the inculcation of leadership qualities should start at a very early age. The year in review saw the Group organise its first School Holiday Camp for the children of Malakoff s employees. Attended by children between the ages of 8 and 17, the camp provided an opportunity for attendees to develop creativity, teamwork and interpersonal skills in a fun and interactive manner. 063 Malakoff Corporation Berhad

66 Corporate Responsibility (cont d) MARKETPLACE DEVELOPMENT Reliable, accurate and timely information is a necessity in today s dynamic business environment. One of our most important channels of communication is through our user-friendly website, which provides all the information the public needs to know about the Group and its business. This website is updated regularly so that the public is kept abreast of the latest developments. Malakoff also maintains a very healthy working relationship with the various media, who can be relied upon to report on the latest news concerning the organisation either through media briefings or press releases issued by the Group. Our annual report is another important source of information about the Group, even though as a private company since 2007, we are not obliged to produce one. Hard copies and CD-ROMs of the report are available to anyone who requests for it, although it may be easier to access it through our website. In other aspects of marketplace development, Malakoff has established a wholly-owned subsidiary, Malakoff Research & Development (R&D) to conduct R&D opportunities for our businesses. Besides exploring avenues to improve process efficiencies at our existing power and water plants, our R&D efforts are also geared towards developing renewable energy projects in line with the Government s drive to develop green and renewable technology for the power generation sector. In fulfilling our responsibility to our stakeholders and the marketplace, quality control is an important component of our business model. Throughout 2012, we continued to invest considerably in relevant tools and methodologies to ensure quality control and maintain our high level of performance with respect to our power plants and our electricity and chilled water distribution business. As manifestation of our commitment to ensuring quality control, our operations and maintenance business has earned various certifications with respect to our power plants: The SEV, GB3 and Prai Power Plants were certified with OHSAS 18001:2007 in 2009; MS 1722:Part in 2009; MS ISO 9001:2008 in 2009 and MS ISO 14001:2004 in 2011 The Tanjung Bin Power Plant was certified with Port security ISPS in 2007; OHSAS 18001:2007 in 2009; MS 1722: Part in 2009; MS ISO 9001:2008 in 2009 and MS ISO 14001:2004 in 2011 The Group s electricity and chilled water distribution business has also received various certifications, including MS ISO 9001:2000 in 2004 and MS ISO 9001:2008 in ENVIRONMENTAL PRESERVATION, As we advance further into the 21st Century, the global environment is in greater peril than ever. Pollution, climate change, environmental degradation and resource depletion are only some of the more urgent problems that we encounter today. Malakoff is committed to reducing the environmental impact of its operations. Our operations are subject to increasingly stringent health, safety and environmental laws and regulations that address, among others, air and water discharges; storage, treatment, discharge and disposal of waste; location of facilities; site clean-ups; and plant and wildlife protection. Not only do we comply with local laws and regulations, but our plants have also been certified to ISO 14001, an internationally recognised environmental management system that allows us to monitor and continually improve our environmental performance in line with our goal of sustainability. 064 Malakoff Corporation Berhad

67 As an ongoing exercise to improve our green credentials, the Group undertook the following initiatives during the year in review: Conducted quarterly environmental audits at our power plants, tracking ambient air quality, gaseous stack emission levels, wastewater quality, marine water quality and noise levels Submitted environmental monitoring reports (conducted by an independent contractor registered with the DOE) to DOE pursuant to the requirements of the environmental impact assessment Monitored our plants surrounding marine eco-system through an annual marine ecology study Installed continuous emissions monitoring systems at all our heat recovery steam generator (HRSG) exhaust stacks to obtain ongoing emission values for monitoring and operational purposes As an indication of our success in minimising the impact of our operations on the environment, the 300-hectare ash pond located at the Kapar Power Plant has become a sanctuary for migratory birds. Each year, the ash pond is temporary home to thousands of water-birds of more than 60 species plying the East Asian Australasian Flyway during the migratory season. Another prime example of our success in preserving the eco-system is our Tanjung Bin Power Plant, where monkeys, otters and eagles can be spotted in the surrounding mangrove area. The marine ecology of the nearby sea is monitored regularly to detect any adverse impact of our operations. But as evidenced by the daily catch of fishermen who ply these waters, this has not been the case. The problem of acid rain that many people wrongly associate with coalfired plants has not arisen. As a matter of fact, laboratory tests have determined that the quality of the rainwater around the power plant to be even more alkaline than the average rainfall in Malaysia. All our coal-fired plants use clean-coal technology equipment to ensure that emissions are within the limits set by DOE. Our commitment to environmental preservation is also manifested through our community out-reach programmes described earlier. These include our Mangrove Initiative, Turtle Conservation Programme, Project AWARE to promote the conservation of the marine eco-system, Project Sunshine to create awareness among teachers and students on green energy, and most recent of all, the UTM Eco Run to promote both sports and environmental awareness among Malaysian youth. The most enduring legacy of our environment preservation efforts could well be the various renewable energy projects that we are looking into at home and overseas. Several feasibility studies are underway to determine the viability of the identified projects. At some point in the future, renewable energy could be the answer to some of today s environmental woes, resolving the issue of resource depletion and reducing carbon emissions to the atmosphere. MOVING FORWARD Looking at the bigger picture, wherever we operate, our direct and indirect economic impact contributes to local economies and we create value in our operating geography. In the context of serving the national interest, as the biggest IPP in Malaysia, we play an important role in ensuring the stability of the nation s electricity supply. In doing so, we are contributing to the nation s economic growth and prosperity, setting it on the path towards achieving the aspirations espoused in Vision Under the watchful eyes and guidance of the Malakoff Community Partnerships Advisory Panel, we will continue to develop CSR agendas, policies and initiatives that are meaningful, impactful and relevant to the needs of the various constituencies that we serve. As we have been doing in the past, we will continue to make a difference in the future, enriching the lives of the communities in which we operate. 065 Malakoff Corporation Berhad

68 Corporate Events highlights January 07-10, 2012 Malakoff Asian Junior Golf Team Championship Winners of the championship with their trophies. 02. January 27, 2012 Friendly football with Energy Commission Football teams from Malakoff & Energy Commission at the friendly game. 03. February 18, 2012 Friendly bowling tournament with MIDA, Tabung Haji and Semasa Sentral Bowlers with their prizes at the friendly bowling tournament. 04. February 23, 2012 EPC Contract Signing for Tanjung Bin Expansion Project En Zainal and Datuk Wira Syed Abdul Jabbar during the signing ceremony. 05. February 29, 2012 Signing Ceremony on the Financing Agreements of Tanjung Bin Energy Issuer Berhad En Zainal with the bankers at the signing ceremony of the financing agreement. 066 Malakoff Corporation Berhad

69 March 22, th Energy Expert Series En Zainal and guest speakers at the event. 07. March 25, 2012 Malakoff 17km, 7km Penang Run Runners with their hard-earned medals. 08. April 07, 2012 Majlis Gotong Royong at Maahad Tarbiyah Islamiyah Al Ansar Volunteers fixing the electric wiring at the hostel. 09. April 29, 2012 Malakoff Golf Invitational (Media) Datuk Wira Syed Abdul Jabbar with the winner of the tournament. 10. May 04-06, th Annual Malakoff Charity Ride Cyclists cycling from Kuala Lumpur to Pontian in the name of charity. 11. May 07, 2012 Program Melentur Buluh Volunteers and schoolchildren posing at the end of the program. 12. May 12, 2012 Malakoff University Duathlon Series 1 Racers at the starting line of MUDS at Universiti Malaya. 067 Malakoff Corporation Berhad

70 Corporate Events highlights (cont d) May 14, 2012 Financing Facility Agreement Signing Ceremony on the Term Loan Facility of US$90 million for the Acquisition of Hidd Power Company B.S.C. En Zainal shaking hands with Mr Hiroyuki Yoshinari, Managing Director & CEO of Mizuho. 14. May 19, 2012 Karnival Sukan Rakyat 2012 Participants having fun blowing balloons during the event. 15. May 19, 2012 Malakoff University Duathlon Series 2 Racers challenging each other in the cycling leg of MUDS at Universiti Putra Malaysia. 16. May 20, 2012 Malakoff Golf Invitational (Authorities) Golfer tee-ing off during the friendly golf tournament. 17. May 26, 2012 Malakoff University Duathlon Series 3 Winners of the Men s University category at Universiti Pertahanan Nasional Malaysia. 18. June 01, 2012 Habitat Restoration Initiative Appreciation Award 2012 Malakoff receiving award from NRE for Habitat Restoration. 068 Malakoff Corporation Berhad

71 June 08-09, 2012 Malakoff Sports Carnival KL HQ team was crowned champion at this year s sports carnival. 20. June 13, 2012 Signing Ceremony of Chilled Water Supply Agreement En Habib and other signatories at the signing ceremony, witnessed by En Zainal. 21. June 22-24, 2012 Malakoff Coral Rehabilitation Program Group of divers and volunteers participating in the Coral Rehabilitation Program. 22. July 09, 2012 Malakoff EDMAT 34 University students visiting Tanjung Bin Power Plant as part of the program. 23. July 11, 2012 Program Kenali Penyu, Sayangi Penyu Participants released turtles at the end of the program. 24. July 14, 2012 Wirazone Customers Day Participants racing to finish the Zoo Treasure Hunt during the event. 069 Malakoff Corporation Berhad

72 Corporate Events highlights (cont d) July 27, 2012 Majlis Iftar Malakoff Orphans received donations during the Iftar. 26. July 27-28, 2012 Malakoff Share Us Your Love Program Malakoff, in collaboration with UNITEN, organised a motivational program called Share Us Your Love with students from Maahad Tarbiyah Islamiyah Al-Ansar. 27. August 02, 2012 Majlis Iftar Prai Power Plant Kids from charity homes were presented with donations from Malakoff. 28. August 10, st Concrete Pouring Ceremony for Tanjung Bin Expansion Tan Sri Datuk Dr Ahmad Tajuddin Ali signing the commemorative plaque during the event. 29 August 10, 2012 Majlis Iftar Tanjung Bin Power Plant Datuk Wira Syed Abdul Jabbar presenting donations to kampong folks. 30. August 26, 2012 Majlis Hari Raya Malakoff Datuk Wira Syed Abdul Jabbar presenting hari raya packets to recipients. 070 Malakoff Corporation Berhad

73 September 07, 2012 Majlis Hari Raya Lumut Power Plant En Zainal presenting duit raya to schoolchildren in Lumut. 32. October 04-06, 2012 Malakoff Learning Beyond The Classroom Program Students enjoyed their visit to Pusat Sains Negara. 33. october 21, 2012 Malakoff Appreciation Ride Malakoff staff and business associates cycled to Fraser s Hill in appreciation for their contribution in the Malakoff Charity Ride November 04, 2012 Malakoff Powerman Asian Duathlon Championship Winners of the Malakoff Powerman Asian Duathlon Championship. 35. November 10, 2012 Malakoff Golf Invitational (Corporate) Malakoff welcomed corporate guests to its Annual Golf Invitational event. 36. November 18, 2012 Malakoff Half Century Ride Cyclists participating in the first Malakoff Half Century Ride in Manjung, Perak. 071 Malakoff Corporation Berhad

74 Corporate Events highlights (cont d) November 23, 2012 Official launch of Malakoff Utilities Sdn Bhd Tan Sri Datuk Dr Ahmad Tajuddin Ali officiating the launch. 38. November 25, 2012 Malakoff UTM Eco Run Runners of all ages participating in the second Malakoff UTM Eco Run. 39. December 12, 2012 Malakoff Johor Parks Save Our Mangroves Program Mr Chew presenting RM50,000 mock cheque to Dato Haji Obet Bin Tawil, the State Secretary of Johor. 40. December 16, 2012 Malakoff 12km, 7km KL Run Participants running along the route in Bukit Damansara. 41. December 31, 2012 January 01, 2013 Malakoff Interstate Fellowship Ride 2012 Donations presented to representatives from Pertubuhan Penyayang Chi Yun Bukit Mertajam and Pertubuhan Moralis Pulau Pinang. 072 Malakoff Corporation Berhad

75 Financial statements Directors Report 074 Statements of Financial Position 078 Statements of Profit or Loss and Other Comprehensive Income 081 Statements of Changes in Equity 083 Statements of Cash Flows 085 Notes to the Consolidated Financial Statements 088 Statement by Directors 186 Statutory Declaration 186 Independent Auditors Report 187

76 Directors report for the year ended 31 December 2012 The Directors have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended 31 December Principal activities The Company is principally engaged in investment holding activities, whilst the principal activities of the subsidiaries are as stated in Note 6 to the financial statements. There has been no significant change in the nature of these activities during the financial year. Results group RM 000 Company RM 000 Profit for the year attributable to: Owners of the Company 468, ,650 Non-controlling interests 79, , ,650 Reserves and provisions There were no material transfers to or from reserves and provisions during the financial year under review except as disclosed in the financial statements. Dividends Since the end of the previous financial year, the Company paid: (i) (ii) (iii) a final ordinary dividend of approximately sen per ordinary share, tax exempt under the single-tier tax system, totalling RM85,000,000 in respect of the financial year ended 31 December 2011 on 2 April 2012; an interim ordinary dividend of approximately sen per ordinary share, tax exempt under the single-tier tax system, totalling RM57,577,996 in respect of the financial year ended 31 December 2012 on 11 September 2012; and an interim preference dividend of 100 sen per share, tax exempt under the single-tier tax system, totalling RM41,792,004 in respect of the financial year ended 31 December 2012 on 11 September The Directors do not recommend any final dividend for the financial year ended 31 December Malakoff Corporation Berhad

77 Directors of the Company Directors who served since the date of the last report are: Director Dato Wira Syed Abdul Jabbar bin Syed Hassan (Chairman) Datuk Hj Hasni bin Harun Datuk Muhamad Noor bin Hamid Dato Azian binti Mohd Noh Tan Ler Chin Andrew Rowan Ian Yee Ooi Teik Huat Tan Sri Dato Seri Alauddin bin Dato Md Sheriff (appointed on 11 December 2012) Datuk Idris bin Das Murthy (appointed on 11 December 2012) Datuk Dr Syed Muhamad bin Syed Abdul Kadir (appointed on 11 December 2012) Alternate Director Lee Khuan Eoi vijay Vijendra Sethu (resigned on 10 December 2012) craig Robert Martin (appointed on 12 December 2012) Directors interests in shares None of the Directors holding office at 31 December 2012 had any interest in the shares of the Company and of its related corporations during the financial year. Directors benefits Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest. There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in the Company or any other body corporate. Issue of shares There were no changes in the authorised, issued and paid-up capital of the Company during the financial year. 075 Malakoff Corporation Berhad

78 Directors report for the year ended 31 December 2012 (continued) Options granted over unissued shares No options were granted to any person to take up unissued shares of the Company during the financial year. Other statutory information Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that: (i) (ii) all known bad debts have been written off and adequate provision made for doubtful debts, and any current assets which were unlikely to be realised in the ordinary course of business have been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances: (i) (ii) (iii) (iv) that would render the amount written off for bad debts, or the amount of the provision for doubtful debts in the Group and in the Company inadequate to any substantial extent, or that would render the value attributed to the current assets in the financial statements of the Group and of the Company misleading, or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate, or not otherwise dealt with in this report or in the financial statements that would render any amount stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist: (i) (ii) any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which secures the liabilities of any other person, or any contingent liability in respect of the Group or of the Company that has arisen since the end of the financial year. No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due. In the opinion of the Directors, the financial performance of the Group and of the Company for the financial year ended 31 December 2012 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of that financial year and the date of this report. 076 Malakoff Corporation Berhad

79 Significant events The significant events during the year are as disclosed in Note 32 to the financial statements. Subsequent events The subsequent events after the end of the financial year are as disclosed in Note 33 to the financial statements. Auditors The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:... Dato Wira Syed Abdul Jabbar bin Syed Hassan Chairman Datuk Hj Hasni bin Harun Director Kuala Lumpur, Date: 26 February Malakoff Corporation Berhad

80 Statements of financial position as at 31 December December Group Note RM 000 RM 000 Non-current assets Property, plant and equipment 3 10,909,160 9,369,792 Intangible assets 4 5,498,521 5,352,002 Prepaid lease payments 5 79,021 83,364 Investment in associates 7 1,403,579 1,145,582 Investment in a jointly-controlled entity 8 47,433 45,504 Other receivables ,083 Deferred tax assets , ,309 Total non-current assets 18,682,483 16,528,553 Current assets Trade and other receivables 11 1,490,171 1,441,263 Inventories , ,411 Current tax assets 210, ,448 Cash and cash equivalents 13 5,153,970 3,102,094 Total current assets 7,563,796 5,386,216 Total assets 26,246,279 21,914,769 Equity Share capital , ,523 Share premium 14 3,575,837 3,575,837 Reserves 14 1, Accumulated losses (95,949) (379,791) Equity attributable to owners of the company 3,836,903 3,552,409 Non-controlling interests 340, ,351 Total equity 4,177,200 3,853, Malakoff Corporation Berhad

81 Statements of financial position as at 31 December 2012 (continued) 31 December Group Note RM 000 RM 000 Non-current liabilities Loans and borrowings 15 14,221,261 10,815,072 Employee benefits 16 51,780 46,517 Deferred income 17 2,338,602 2,058,319 Deferred tax liabilities 10 2,750,242 2,698,730 Derivative financial liabilities ,750 Total non-current liabilities 19,524,635 15,618,638 Current liabilities Trade and other payables 18 1,435, ,010 Current tax liabilities 16,718 10,442 Loans and borrowings 15 1,041,897 1,442,802 Deferred income 17 50,503 41,117 Total current liabilities 2,544,444 2,442,371 Total liabilities 22,069,079 18,061,009 Total equity and liabilities 26,246,279 21,914, Malakoff Corporation Berhad

82 Statements of financial position as at 31 December 2012 (continued) 31 December 1 January Company Note RM 000 RM 000 RM 000 RM 000 RM 000 Non-current assets Property, plant and equipment 3 40,576 40,875 41,045 40,324 42,856 Investment in subsidiaries 6 8,137,395 8,131,943 8,132,555 8,132,555 8,132,555 Investment in associates 7 998, , , ,800 1,006,800 Other investments 9 1,027,419 1,130,594 1,364,654 1,411,495 1,665,471 Total non-current assets 10,204,190 10,302,212 10,537,054 10,583,174 10,847,682 Current assets Trade and other receivables 11 1,175, , , , ,855 Current tax assets 28,180 39, , , ,664 Cash and cash equivalents , , , , ,115 Total current assets 1,584,811 1,739,742 1,618,624 1,647,131 1,378,634 Total assets 11,789,001 12,041,954 12,155,678 12,230,305 12,226,316 Equity Share capital , , , , ,363 Share premium 14 3,575,837 3,575,837 3,575,837 3,575,837 3,658,997 Reserves Retained profits 381, , , , ,765 Total equity 4,313,566 4,166,286 4,147,199 4,171,586 4,207,125 Non-current liabilities Loans and borrowings 15 6,441,439 7,049,284 7,007,200 6,949,384 6,902,250 Employee benefits 16 14,888 13,353 12,065 10,158 10,519 Deferred tax liabilities 10 15,899 14,854 14,854 20,185 20,185 Total non-current liabilities 6,472,226 7,077,491 7,034,119 6,979,727 6,932,954 Current liabilities Loans and borrowings , , , , ,292 Trade and other payables , , , , ,945 Total current liabilities 1,003, , ,360 1,078,992 1,086,237 Total liabilities 7,475,435 7,875,668 8,008,479 8,058,719 8,019,191 Total equity and liabilities 11,789,001 12,041,954 12,155,678 12,230,305 12,226,316 The notes on pages 088 to 185 are an integral part of these financial statements. 080 Malakoff Corporation Berhad

83 Statements of profit or loss and other comprehensive income for the year ended 31 DECEMBER 2012 group company Note RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Revenue 20 5,587,608 5,691, , , , ,054 Cost of sales (4,047,233) (4,022,757) Gross profit 1,540,375 1,669, , , , ,054 Other income 102,123 47, (1,732) 14,866 Administrative expenses (250,604) (127,815) (88,044) (65,869) (59,884) (67,528) Other operating expenses (153,359) (182,223) Results from operating activities 1,238,535 1,406, , , , ,392 Interest income 159,380 40, , , , ,035 Finance costs (797,279) (1,015,214) (461,423) (573,975) (634,707) (582,440) Operating profit 600, , , , , ,987 Share of profit of equity-accounted associates and a jointly-controlled entity, net of tax 106, ,085 Profit before tax 707, , , , , ,987 Income tax expense 24 (158,974) (79,107) (30,868) (50,343) (51,887) (61,526) Profit for the year , , , , , ,461 The notes on pages 088 to 185 are an integral part of these financial statements. 081 Malakoff Corporation Berhad

84 Statements of profit or loss and other comprehensive income for the year ended 31 DECEMBER 2012 (continued) group company Note RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Other comprehensive income, net of tax Items that may be reclassified subsequently to profit or loss Cash flow hedge 22 (5,107) Foreign currency translation differences for foreign operation 5,759 Total other comprehensive income for the year 652 Comprehensive income for the year 548, , , , , ,461 Profit attributable to: Owners of the Company 468, , , , , ,461 Non-controlling interests 79,963 91,916 Profit for the year 548, , , , , ,461 Comprehensive income attributable to: Owners of the Company 468, , , , , ,461 Non-controlling interests 79,963 91,916 Comprehensive income for the year 548, , , , , ,461 The notes on pages 088 to 185 are an integral part of these financial statements. 082 Malakoff Corporation Berhad

85 Statements of changes in equity for the year ended 31 December 2012 / Attributable to owners of the Company / / Non-distributable / Distributable Share capital Share premium Reserves Noncapital Accumulated controlling Total Group ordinary Preference Ordinary Preference redemption Translation Hedging losses Total interests equity RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM January ,344 4,179 3,162, , (659,866) 3,272, ,466 3,512,800 Total comprehensive income for the year 459, ,075 91, ,991 Dividends to owners of the Company (179,000) (179,000) (179,000) Dividends to non-controlling interests (31,031) (31,031) Total distribution to owners (179,000) (179,000) (31,031) (210,031) At 31 December 2011/ 1 January ,344 4,179 3,162, , (379,791) 3,552, ,351 3,853,760 Foreign currency translation differences for foreign operations 5,759 5,759 5,759 Cash flow hedge (5,107) (5,107) (5,107) Other comprehensive income for the year 5,759 (5,107) Profit for the year 468, ,212 79, ,175 Comprehensive income for the year 5,759 (5,107) 468, ,864 79, ,827 Dividends to owners of the Company (184,370) (184,370) (184,370) Dividends to non-controlling interests (41,017) (41,017) Total distribution to owners (184,370) (184,370) (41,017) (225,387) At 31 December ,344 4,179 3,162, , ,759 (5,107) (95,949) 3,836, ,297 4,177, Malakoff Corporation Berhad

86 Statements of changes in equity for the year ended 31 December 2012 (continued) / Attributable to owners of the Company / / Non-distributable / Distributable Share capital Share premium Reserves capital Retained Total Company ordinary Preference Ordinary Preference redemption profits equity RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM January ,344 5,019 3,162, , ,765 4,207,125 Total comprehensive income for the year 133, ,461 Redemption of preference shares (840) (83,160) 840 (840) (84,000) Dividends to owners of the Company (85,000) (85,000) At 31 December 2009/ 1 January ,344 4,179 3,162, , ,386 4,171,586 Total comprehensive income for the year 149, ,613 Dividends to owners of the Company (174,000) (174,000) At 31 December 2010/ 1 January ,344 4,179 3,162, , ,999 4,147,199 Total comprehensive income for the year 198, ,087 Dividends to owners of the Company (179,000) (179,000) At 31 December 2011/ 1 January ,344 4,179 3,162, , ,086 4,166,286 Total comprehensive income for the year 331, ,650 Dividends to owners of the Company (184,370) (184,370) At 31 December ,344 4,179 3,162, , ,366 4,313,566 The notes on pages 088 to 185 are an integral part of these financial statements. 084 Malakoff Corporation Berhad

87 Statements of cash flows for the year ended 31 December 2012 group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cash flows from operating activities Profit before tax 707, , , , , ,987 Adjustments for: Amortisation of prepaid lease payments 4,343 4,344 Amortisation of intangible assets 440, ,850 Amortisation of transaction costs of hedging instruments 7,327 Depreciation of property, plant and equipment 435, ,546 2,790 2,341 2,410 2,182 Finance costs 797,279 1,015, , , , ,440 Gain on disposal of investment in a subsidiary (26,700) Impairment loss on intangible assets 44,123 Impairment loss on trade receivables 16,105 4,712 Interest income (159,380) (40,894) (220,276) (124,256) (266,520) (308,035) Loss on disposal of leasehold land 135 Property, plant and equipment written off 1,774 2,699 Provision for retirement benefits 5,944 8,432 1,745 3,558 2,016 (1,337) Reversal of impairment loss on trade receivable (10,307) (60,595) Share of profit of equity-accounted associates and a jointly-controlled entity, net of tax (106,513) (198,085) Operating profit before changes in working capital 2,112,746 2,288, , , , ,372 Changes in working capital: Inventories (11,126) (145,156) Trade and other receivables (133,820) 23,552 (330,214) (36,539) (137,217) 19,285 Trade and other payables 10, ,003 (75,431) (71,233) 54,133 (138,161) Deferred income 289, ,400 Employee benefits (681) (2,588) (210) (2,270) (109) (1,698) Cash generated from operations 2,267,096 2,585, , , , ,798 Income taxes (paid)/refund (226,404) 21,466 (18,842) 104,753 44,439 Net cash from operating activities 2,040,692 2,607, , , , , Malakoff Corporation Berhad

88 Statements of cash flows for the year ended 31 December 2012 (continued) group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cash flows from investing activities Acquisition of property, plant and equipment (1,976,552) (88,158) (2,491) (2,171) (3,131) (240) Dividends received from associates 62,904 52,864 Decrease/(Increase) in deposits pledged 16,323 (416) 16,323 (416) 1, Interest received 99,458 99, ,659 56, , ,643 Investment in subsidiaries (5,771) Investment in an associate (347,563) (183,878) Proceeds from redemption of unsecured loan stocks 44,735 22, , ,672 46, ,976 Proceeds from disposal of a subsidiary 74,568 Proceeds from disposal of a leasehold land 455 Redemption of unsecured loan stocks (59,219) (29,050) Acquisition of assets and liabilities of Hicom Power Sdn. Bhd., net of cash gained (76,665) Net cash (used in)/from investing activities (2,162,011) (127,167) 326, , , ,013 Cash flows from financing activities Dividends paid to the owners of the Company (184,370) (179,000) (184,370) (179,000) (174,000) (85,000) Dividends paid to non-controlling interests (41,017) (31,031) Interest paid (644,269) (957,180) (488,805) (505,474) (501,340) (524,181) Repayment of borrowings (6,284,000) (1,076,000) (2,100,000) (100,000) (100,000) Proceeds from borrowings 9,343,174 1,800,000 Redemption of preference shares (84,000) Net cash from/(used in) financing activities 2,189,518 (2,243,211) (973,175) (784,474) (775,340) (693,181) Net increase/(decrease) in cash and cash equivalents 2,068, ,743 (463,458) 202,467 (37,238) 209,069 Cash and cash equivalents at beginning of the year 3,085,771 2,849, , , , ,236 Cash and cash equivalents at end of the year 5,153,970 3,085, , , , , Malakoff Corporation Berhad

89 Statements of cash flows for the year ended 31 December 2012 (continued) Cash and cash equivalents Cash and cash equivalents included in the statements of cash flows comprise the following statements of financial position amounts: group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Deposits with licenced banks 5,066,330 3,050, , , , ,347 Cash and bank balances 87,640 51,674 3,120 5,418 4,077 48,658 5,153,970 3,102, , , , ,005 Less: Deposits pledged (16,323) (16,323) (15,907) (17,700) 5,153,970 3,085, , , , ,305 The notes on pages 088 to 185 are an integral part of these financial statements. 087 Malakoff Corporation Berhad

90 Notes to the consolidated financial statements Malakoff Corporation Berhad is a public limited liability company, incorporated and domiciled in Malaysia. The addresses of the principal place of business and registered office of the Company are as follows: Principal place of business Level 12, Block 3B Plaza Sentral Jalan Stesen Sentral Kuala Lumpur Registered office ground Floor, Wisma Budiman Persiaran Raja Chulan Kuala Lumpur This consolidated financial statements of the Company as at and for the financial year ended 31 December 2012 comprise the Company and its subsidiaries (together referred to as the Group and individually referred to as Group entities ) and the Group s interest in associates and joint venture. The financial statements of the Company as at and for the financial year ended 31 December 2012 do not include other entities. The Company is principally engaged in investment holding activities, whilst the principal activities of the subsidiaries are as stated in Note 6 to the financial statements. The immediate and ultimate holding companies during the financial year were MMC Corporation Berhad, a company listed on the Main Market of Bursa Malaysia Securities Berhad and Indra Cita Sdn. Bhd.. Both companies were incorporated in Malaysia. These financial statements were authorised for issue by the Board of Directors on 26 February Basis of preparation (a) Statement of compliance The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRSs ), International Financial Reporting Standards ( IFRSs ) and the Companies Act, 1965 in Malaysia. In the previous financial years, the historical financial statements of the Group and of the Company were prepared in accordance with Financial Reporting Standards ( FRSs ) in Malaysia. The Group has prepared its first MFRSs and IFRSs consolidated financial statements for the financial year ended 31 December 2011 in connection with the application of public offering of ordinary shares of the Company to its official listing on the main market of Bursa Malaysia Securities Berhad. In preparing the first MFRSs and IFRSs consolidated financial statements, the Group has applied MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards and included explicit and unreserved statement of compliance with MFRSs. These first set of MFRSs and IFRSs consolidated financial statements has been filed with the Securities Commission in Malaysia and publicly made available. This is the Company s first separate financial statements prepared in accordance with MFRSs and IFRSs and MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards has been applied. The transition to MFRSs does not have financial impact to the Company s separate statement of financial position, statements of profit or loss and other comprehensive income, changes in equity and cash flows except for the retrospective effect of MFRS 139 from the annual period on 1 January 2009 as disclosed in Note 36. The Group and the Company have early adopted the amendments to MFRS 101, Presentation of Financial Statements which are effective for annual periods beginning on or after 1 July The early adoption of the amendments to MFRS 101 has no impact on the Group and the Company s financial statements other than the presentation format of the Group and of the Company s statement of profit or loss and other comprehensive income. 088 Malakoff Corporation Berhad

91 1. Basis of preparation (continued) (a) Statement of compliance (continued) The following are accounting standards, amendments and interpretations of the MFRS framework that have been issued by the Malaysian Accounting Standards Board ( MASB ) but have not been adopted by the Group and the Company. MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2013 MFRS 10, Consolidated Financial Statements MFRS 11, Joint Arrangements MFRS 12, Disclosure of Interests in Other Entities MFRS 13, Fair Value Measurement MFRS 119, Employee Benefits (2011) MFRS 127, Separate Financial Statements (2011) MFRS 128, Investments in Associates and Joint Ventures (2011) IC Interpretation 20, Stripping Costs in the Production Phase of a Surface Mine Amendments to MFRS 7, Financial Instruments: Disclosures Offsetting Financial Assets and Financial Liabilities Amendments to MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards Government Loans Amendments to MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards (Annual Improvements Cycle) Amendments to MFRS 101, Presentation of Financial Statements (Annual Improvements Cycle) Amendments to MFRS 116, Property, Plant and Equipment (Annual Improvements Cycle) Amendments to MFRS 132, Financial Instruments: Presentation (Annual Improvements Cycle) Amendments to MFRS 134, Interim Financial Reporting (Annual Improvements Cycle) Amendments to MFRS 10, Consolidated Financial Statements: Transition Guidance Amendments to MFRS 11, Joint Arrangements: Transition Guidance Amendments to MFRS 12, Disclosure of Interests in Other Entities: Transition Guidance MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2014 Amendments to MFRS 132, Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2015 MFRS 9, Financial Instruments (2009) MFRS 9, Financial Instruments (2010) Amendments to MFRS 7, Financial Instruments: Disclosures Mandatory Date of MFRS 9 and Transition Disclosures The Group and the Company plan to apply the abovementioned standards, amendments and interpretations: from the annual period beginning on 1 January 2013 for those standards, amendments or interpretations that are effective for annual periods beginning on or after 1 January 2013, except for IC Interpretation 20 which is not applicable to the Group and the Company. from the annual period beginning on 1 January 2014 for those standards, amendments or interpretations that are effective for annual periods beginning on or after 1 January from the annual period beginning on 1 January 2015 for those standards, amendments or interpretations that are effective for annual periods beginning on or after 1 January Material impacts of initial application of a standard, an amendment or an interpretation are discussed below: 089 Malakoff Corporation Berhad

92 Notes to the consolidated financial statements (continued) 1. Basis of preparation (continued) (a) Statement of compliance (continued) MFRS 9, Financial Instruments MFRS 9 replaces the guidance in MFRS 139, Financial Instruments: Recognition and Measurement on the classification and measurement of financial assets. Upon adoption of MFRS 9, financial assets will be measured at either fair value or amortised cost. The adoption of MFRS 9 will result in a change in accounting policy. The Group is currently assessing the financial impact of adopting MFRS 9. MFRS 10, Consolidated Financial Statements MFRS 10, Consolidated Financial Statements introduces a new single control model to determining which investees should be consolidated. MFRS 10 supersedes MFRS 127, Consolidated and Separate Financial Statements and IC Interpretation 112, Consolidation Special Purpose Entities. There are three elements to the definition of control in MFRS 10: (i) power by investor over an investee, (ii) exposure, or rights, to variable returns from investor s involvement with the investee, and (iii) investor s ability to affect those returns through its power over the investee. MFRS 11, Joint Arrangements MFRS 11, Joint Arrangements establishes the principles for classification and accounting for joint arrangements and supersedes MFRS 131, Interests in Joint Ventures. Under MFRS 11, a joint arrangement may be classified as joint venture or joint operation. Interest in joint venture will be accounted for using the equity method whilst interest in joint operation will be accounted for using the applicable MFRSs relating to the underlying assets, liabilities, income and expense items arising from the joint operations. MFRS 13, Fair Value Measurement MFRS 13, Fair Value Measurement establishes the principles for fair value measurement and replaces the existing guidance in different MFRSs. MFRS 119, Employee Benefits (2011) The amendments to MFRS 119, Employee Benefits change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur, and hence eliminate the corridor method permitted under the previous version of MFRS 119 and accelerate the recognition of past service costs. The amendments require all actuarial gains and losses to be recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus. The amendments to MFRS 119 are effective for annual periods beginning on or after 1 January 2013 and require retrospective application. The Group is currently assessing the financial impact of adopting the amendments to MFRS 119. The initial application of other standards, amendments and interpretations is not expected to have any material financial impacts to the current and prior periods financial statements upon their first adoption. 090 Malakoff Corporation Berhad

93 1. Basis of preparation (continued) (b) Basis of measurement The financial statements have been prepared on the historical cost basis other than as disclosed in Note 2. (c) (d) Functional and presentation currency These financial statements are presented in Ringgit Malaysia (RM), which is the Company s functional currency. All financial information is presented in RM and has been rounded to the nearest thousand, unless otherwise stated. Use of estimates and judgments The preparation of the financial statements in conformity with MFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate are revised and in any future periods affected. There are no significant areas of estimation uncertainty and critical judgments in applying accounting policies that have significant effect on the amounts recognised in the financial statements other than the following: (i) (ii) Lease accounting The Group has adopted IC Interpretation 4, Determining whether an Arrangement contains a Lease, which prescribes that the determination of whether an arrangement is or contains a lease shall be based on the substance of the arrangement. It requires an assessment of whether the fulfilment of the arrangement is depended on the use of specific assets and whether the arrangement conveys a right to use such assets. The adoption of IC Interpretation 4 has resulted in operating lease accounting being applied to the Group entities as lessor for the Power Purchase Agreements. Cash flow hedge accounting The Group enters into various types of hedging contracts to hedge the interest rate risks and foreign exchange risk which both are arisen from the loan transactions. In merchant markets these contracts typically fall within the definition of derivative financial instruments and accordingly have to be marked to market. Accounting for these contracts as cash flow hedges allows, to the extent the hedge is effective, the changes in value of the derivatives to be deferred in equity. In order to achieve cash flow hedge accounting it is necessary for the Group to determine, on an on-going basis, whether a forecast transaction is both highly probable and whether the hedge is effective. This requires both subjective and objective measures of determination. (iii) Fair value of derivatives The Group has presented its financial statements in accordance with the requirements of MFRS 132 Financial Instruments: Presentation and Disclosure and MFRS 139 Financial Instruments: Recognition and Measurement. In accordance with MFRS 139, the Group records its derivative contracts on its balance sheet at fair value. Changes in the value of its derivative contracts in each period are recorded in earnings unless strict hedge accounting criteria are met which allow the movement in fair value to be recorded within equity. The Group estimates the fair value of its derivative contracts by reference to forward and discount curves. The forward curve is derived from a reputable provider of financial market data, over the short-term horizon period, and from valuation techniques over the more distant horizon period. The assumptions used during the application of valuation techniques will directly impact the shape of the forward curve. The forward curves are only estimates of future rates and thus possess inherent uncertainty and subjectivity. (iv) Residual value The Group assesses the appropriateness of the residual values of the power plants at the end of the initial concession period. The Group considered and adopted the recoverable values of the assets based on the discounted cash flow method with the assumptions as shown in Note 2 (d)(iv). 091 Malakoff Corporation Berhad

94 Notes to the consolidated financial statements (continued) 2. Significant accounting policies The accounting policies set out below have been applied consistently to the periods presented in these financial statements by the Group and the Company, and in preparing the opening MFRS statements of financial position of the Company at 1 January 2009 (the transition date to MFRS framework), unless otherwise stated. (a) Basis of consolidation (i) Subsidiaries Subsidiaries are entities, including unincorporated entities, controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Control exists when the Company has the ability to exercise its power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. Investments in subsidiaries are measured in the Company s statement of financial position at cost less any impairment losses, unless the investment is held for sale or distribution. The cost of investments includes transaction costs. (ii) Business combinations Business combinations are accounted for using the acquisition method from the acquisition date, which is the date on which control is transferred to the Group. Acquisitions on or after 1 January 2009 For acquisitions on or after 1 January 2009, the Group measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. For each business combination, the Group elects whether it measures the non-controlling interests in the acquiree either at fair value or at proportionate share of the acquiree s identifiable net assets at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Acquisitions before 1 January 2009 As part of its transition to MFRS, the Group elected not to restate those business combinations that occurred before the date of transition to MFRSs, i.e. 1 January Goodwill arising from acquisitions before 1 January 2009 has been carried forward from the previous FRS framework as at the date of transition. (iii) Acquisitions of non-controlling interests The Group treats all changes in its ownership interest in a subsidiary that do not result in a loss of control as equity transactions between the Group and its non-controlling interest holders. Any difference between the Group s share of net assets before and after the change, and any consideration received or paid, is adjusted to or against Group reserves. 092 Malakoff Corporation Berhad

95 2. Significant accounting policies (continued) (a) Basis of consolidation (continued) (iv) Loss of control Upon the loss of control of a subsidiary, the Group derecognises the assets and liabilities of the subsidiary, any noncontrolling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. (v) Associates Associates are entities, including unincorporated entities, in which the Group has significant influence, but not control, over the financial and operating policies. Investments in associates are accounted for in the consolidated financial statements using the equity method less any impairment losses, unless it is classified as held for sale or distribution. The cost of the investment includes transaction costs. The consolidated financial statements include the Group s share of the profit or loss and other comprehensive income of the associates, after adjustments if any, to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group s share of losses exceeds its interest in an associate, the carrying amount of that interest including any long-term investments is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate. Investments in associates are measured in the Company s statement of financial position at cost less any impairment losses, unless it is classified as held for sale or distribution. The cost of investments includes transaction cost. (vi) Joint controlled operations and assets A jointly controlled operation is a joint venture carried on by each venture using its own assets in pursuit of the joint operations. The consolidated financial statements include the assets that the Group controls and the liabilities that it incurs in the course of pursuing the joint operation, and the expenses that the Group incurs and its share of the income that it earns from the joint operation. (vii) Non-controlling interests Non-controlling interests at the end of the reporting period, being the equity in a subsidiary not attributable directly or indirectly to the equity holders of the Company, are presented in the consolidated statement of financial position and statement of changes in equity within equity, separately from equity attributable to the owners of the Company. Noncontrolling interests in the results of the Group is presented in the consolidated statement of profit or loss and other comprehensive income as an allocation of the profit or loss and the comprehensive income for the year between noncontrolling interests and the owners of the Company. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. (viii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group s interest in the associates. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 093 Malakoff Corporation Berhad

96 Notes to the consolidated financial statements (continued) 2. Significant accounting policies (continued) (b) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting period are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at the end of the reporting date, except for those that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments or a financial instrument designated as a hedge of currency risk, which are recognised in other comprehensive income. (ii) Operations denominated in functional currencies other than Ringgit Malaysia The assets and liabilities of operations denominated in functional currencies other than RM, including goodwill and fair value adjustments arising on acquisition, are translated to RM at exchange rates at the end of the reporting period, except for goodwill and fair value adjustments arising from business combinations before 1 January 2009 which are treated as assets and liabilities of the Company. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to RM at exchange rates at the dates of the transactions. The income and expenses of foreign operations in hyperinflationary economies are translated to RM at the exchange rate at the end of the reporting period. Prior to translating the financial statements of foreign operations in hyperinflationary economies, their financial statements for the current period are restated to account for changes in the general purchasing power of the local currency. The restatement is based on relevant price indices at the end of the reporting period. Foreign currency differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve ( FCTR ) in equity. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the FCTR related to that foreign operation is reclassified to profit or loss as part of the profit or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. In the consolidated financial statements, when settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented in the FCTR in equity. 094 Malakoff Corporation Berhad

97 2. Significant accounting policies (continued) (c) Financial instruments (i) Initial recognition and measurement A financial asset or a financial liability is recognised in the statement of financial position when, and only when, the Group and the Company becomes a party to the contractual provisions of the instrument. A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument. (ii) Financial instrument categories and subsequent measurement The Group and the Company categorise financial instruments as follows: Financial assets Loans and receivables Loans and receivables category comprises debt instruments that are not quoted in an active market. Financial assets categorised as loans and receivables are subsequently measured at amortised cost using the effective interest method. All financial assets are subject to review for impairment (see Note 2(j)). Financial liabilities All financial liabilities are subsequently measured at amortised cost using the effective interest method. Fair value through profit or loss category comprises financial liabilities that are derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) or financial liabilities that are specifically designated into this category upon initial recognition. Other financial liabilities categorized as fair value through profit or loss are subsequently measured at their fair value with the gain or loss recognised in profit or loss. (iii) Hedge accounting Cash flow hedge During the financial year, the Group had elected to apply cash flow hedge on some of its borrowings. A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect the profit or loss. In a cash flow hedge, the portion of the gain and loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income and the ineffective portion is recognised in profit or loss. Subsequently, the cumulative gain or loss recognised in other comprehensive income is reclassified from equity into profit or loss in the same period or periods during which the hedged forecast cash flows affect profit or loss. If the hedge item is a non-financial asset or liability, the associated gain or loss recognised in other comprehensive income is removed from equity and included in the initial amount of the asset or liability. However, loss recognised in other comprehensive income that will not be recovered in one or more future periods is reclassified from equity into profit or loss. 095 Malakoff Corporation Berhad

98 Notes to the consolidated financial statements (continued) 2. Significant accounting policies (continued) (c) Financial instruments (continued) (iii) Hedge accounting (continued) Cash flow hedge (continued) Cash flow hedge accounting is discontinued prospectively when the hedging instrument expires or is sold, terminated or exercised, the hedge designation is revoked. If the hedge is for a forecast transaction, the cumulative gain or loss on the hedging instrument remains in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, any related cumulative gain or loss recognised in other comprehensive income on the hedging instrument is reclassified from equity into profit or loss. (iv) Derecognition A financial asset or part of it is derecognised when, and only when the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in profit or loss. A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. (d) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less any accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. The cost of self-constructed assets also includes the cost of materials and direct labour. For qualifying assets, borrowing costs are capitalised in accordance with the accounting policy on borrowing costs. Costs also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign purchases of property, plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. The cost of property, plant and equipment recognised as a result of a business combination is based on fair value at acquisition date. The fair value of property is the estimated amount for which a property could be exchanged between knowledgeable willing parties in an arm s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The fair value of other items of plant and equipment is based on the quoted market prices for similar items when available and replacement costs when appropriate. When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and is recognised net within other income or other operating expenses respectively in profit or loss. 096 Malakoff Corporation Berhad

99 2. Significant accounting policies (continued) (d) Property, plant and equipment (continued) (ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group or the Company, and its cost can be measured reliably. The carrying amount of the replaced component is derecognised to profit or loss. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed, and if a component has a useful life that is different from the remainder of that assets, then that component is depreciated separately. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Freehold land is not depreciated. Property, plant and equipment under construction are not depreciated until the assets are ready for their intended use. The estimated useful lives for the current and comparative periods are as follows: Buildings 5 20 years C-inspection costs 3 years Plant and machinery 5 31 years Office equipment and furniture 5 years Motor vehicles 5 years Computers 3 years Depreciation methods, useful lives and residual values are reviewed at end of the reporting period, and adjusted as appropriate. (iv) Residual value The Group charges depreciation on its depreciable property, plant and equipment based on the useful lives and residual values of the assets. Estimating the useful lives and residual values of property, plant and equipment involves significant judgement, selection of variety of methods and assumptions that are normally based on market conditions existing at the balance sheet date. The actual useful lives and residual values of the assets however, may be different from expected. The Power Purchase Agreements ( PPAs ) provide for the disposal of the power plants at the end of the initial concession period, in the event that the PPAs are not extended. In assessing the appropriateness of the residual values adopted, management considered the recoverable values of the assets based on the discounted cash flow method ( DCF ). The discounted cash flows were derived using the following critical assumptions: 097 Malakoff Corporation Berhad

100 Notes to the consolidated financial statements (continued) 2. Significant accounting policies (continued) (d) Property, plant and equipment (continued) (iv) Residual value (1) extension of five to ten years of the Power Purchase Agreements ( PPAs ) at the end of the initial concession period, in view of: (i) (ii) (iii) limited new power plants being constructed; increase in demand for power, and Tenaga Nasional Berhad ( TNB ) s continued reliance on Independent Power Producers ( IPPs ). The existing PPAs expire as follow: PPA Owner Residual value Residual value year of RM million RM million expiry at at Segari Energy Ventures Sdn. Bhd. ( SEV ) * 1,377 GB3 Sdn. Bhd Prai Power Sdn. Bhd Tanjung Bin Sdn. Bhd ,924 1,924 3,123 4,130 * The original PPA for SEV expires in SEV has obtained approval for a 10 year extension to its PPA to Consequently, the residual value for SEV s power plant has been revised. (2) an estimated Variable Operating Rate ( VOR ) during the extension period which management deems to be reasonable based on the expected demand and the VOR rate at the end of the PPAs; (3) an average despatch factor of 22% and 75% to reflect the future demand for power by the industry; and (4) the discount rate of 7.5% (pre-tax: 10%) per annum. (e) Leased assets (i) Finance lease Leases in terms of which the Group or the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. Leasehold land which in substance is a finance lease is classified as property, plant and equipment. 098 Malakoff Corporation Berhad

101 2. Significant accounting policies (continued) (e) Leased assets (continued) (ii) Operating lease (a) Group as lessee Leasehold land Leases, where the Group or the Company does not assume substantially all the risks and rewards of ownership are classified as operating leases and, except for property interest held under operating lease, the leased assets are not recognised in the statements of financial position. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense, over the term of the lease. Contingent rentals are charged to profit or loss in the reporting period in which they are incurred. Leasehold land which in substance is an operating lease is classified as prepaid lease payments. (b) Group as lessor Power purchase agreement The Group adopted IC Interpretation 4, Determining whether an Arrangement contains a Lease, which prescribed that the determination of whether an arrangement is or contains a lease shall be based on the substance of the arrangement. It requires an assessment of whether the fulfillment of the arrangement is dependent on the use of specific asset and whether the arrangement conveys a right to use such assets. An arrangement that contains a lease is accounted for as a finance lease or an operating lease. Payment for services and the cost of inputs of the arrangement are excluded from the calculation of the minimum lease payments. The operating lease income is recognised over the term of the lease on a straight-line basis. (f) Intangible assets (i) Goodwill Goodwill arises on business combinations is measured at cost less any accumulated impairment losses. In respect of equity accounted associates, the carrying amount of goodwill is included in the carrying amount of the investment and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted associates. (ii) Other intangible assets Intangible assets, other than goodwill, that are acquired by the Group, which have finite useful lives, are measured at cost less any accumulated amortisation and any accumulated impairment losses. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets. (iii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific assets to which it relates. All other expenditure, including expenditure on internally generated goodwill, is recognised in profit or loss as incurred. 099 Malakoff Corporation Berhad

102 Notes to the consolidated financial statements (continued) 2. Significant accounting policies (continued) (f) Intangible assets (continued) (iv) Amortisation Goodwill are not amortised but are tested for impairment annually and whenever there is an indication that they may be impaired. Other intangible assets are amortised from the date that they are available for use. Amortisation of intangible asset is recognised in profit or loss based on the estimated net electrical output and fixed operation and maintenance income over the finite useful lives of the intangible assets. Amortisation method and residual values are reviewed at the end of each reporting period and adjusted, if appropriate. (g) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is measured based on weighted average cost formula, and includes expenditure incurred in acquiring the inventories, production or conversion cost and other cost incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs completion and the estimated costs necessary to make the sale. The fair value of inventories acquired in business combination is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories. (h) (i) Receivables Trade and other receivables are categorised and measured as loans and receivables in accordance with Note 2(c). Cash and cash equivalents Cash and cash equivalents consist of cash on hand, balances and deposits with banks and highly liquid investments which have an insignificant risk of changes in fair value with original maturities of three months or less, and are used by the Group and the Company in the management of their short term commitments. For the purpose of the statement of cash flows, cash and cash equivalents are presented net of pledged deposits. 100 Malakoff Corporation Berhad

103 2. Significant accounting policies (continued) (j) Impairment (i) Financial assets All financial assets (except for financial assets categorised as investments in subsidiaries, investments in associates and jointly-controlled operations and assets) are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. For an investment in an equity instrument, a significant or prolonged decline in the fair value below its cost is an objective evidence of impairment. An impairment loss in respect of loans and receivables is recognised in profit or loss and is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the asset s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, to the extent that the asset s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss. (ii) Other assets The carrying amounts of other assets (except for inventories and deferred tax assets) are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each period at the same time. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating units. Subject to an operating segment ceiling test, for the purpose of goodwill impairment testing, cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reposting purposes. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to group of cash-generating units that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of cashgenerating units) and then to reduce the carrying amount of the other assets in the cash-generating unit (groups of cash-generating units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at the end of each reporting period for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised. 101 Malakoff Corporation Berhad

104 Notes to the consolidated financial statements (continued) 2. Significant accounting policies (continued) (k) Equity instruments Instruments classified as equity are measured at cost on initial recognition and are not remeasured subsequently. (i) (ii) Ordinary shares Ordinary shares are classified as equity. Preference share capital Preference share capital is classified as equity if it is non-redeemable, or is redeemable but only at the Company s option, and any dividends are discretionary. Dividends thereon are recognised as distributions within equity. Preference share capital is classified as financial liability if it is redeemable on a specific date or at the option of the equity holders, or if dividend payments are not discretionary. Dividends thereon are recognised as interest expense in profit or loss as accrued. (l) Employee benefits (i) Short-term employee benefits Short-term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave and sick leave are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group or the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. (ii) State plans The Group s and the Company s contributions to statutory pension funds are charged to profit or loss in the year to which they relate. Once the contributions have been paid, the Group and the Company has no further payment obligations. (iii) Defined benefit plans The Group s and the Company s net obligation in respect of a defined benefit retirement plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods and that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the end of the reporting period on high quality corporate bonds or government bonds that have maturity dates approximating the terms of the Group s and the Company s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group or the Company, the recognised asset is limited to the total of any unrecognised past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. 102 Malakoff Corporation Berhad

105 2. Significant accounting policies (continued) (l) Employee benefits (continued) (iii) Defined benefit plans (continued) When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. The Group and the Company recognises all actuarial gains and losses arising from defined benefit plans directly in other comprehensive income and all expenses related to defined benefits plans in personnel expenses in profit or loss. The Group and the Company recognises gains and losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets, change in present value of defined benefit obligation and any related actuarial gains and losses and past service cost that had not previously been recognised. An actuarial valuation is conducted by an independent actuary at regular intervals. The last valuation performed was on 31 December (m) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. (n) Contingent liabilities Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is not recognised in the statements of financial position and is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. (o) Revenue recognition (i) Energy payments, operation and maintenance charges and project management fees Revenue is measured at the fair value of the consideration received or receivable and is recognised in profit or loss as it accrues. (ii) Capacity payment Revenue is recognised on a straight-line basis where the PPA is considered to be or to contain an operating lease. (iii) Dividend income Dividend income is recognised in profit or loss on the date that the Group s or the Company s right to receive payment is established. (iv) Interest income Interest income is recognised as it accrues using the effective interest method in profit or loss except for interest income arising from temporary investment of borrowings taken specifically for the purpose of obtaining a qualifying asset which is accounted for in accordance with the accounting policy on borrowing costs. 103 Malakoff Corporation Berhad

106 Notes to the consolidated financial statements (continued) 2. Significant accounting policies (continued) (p) Deferred income Deferred income comprise the capacity payments received from Tenaga Nasional Berhad in relation to the PPAs. The amount is credited to profit or loss on a straight-line basis over the term of the respective PPAs under Revenue in the statement of comprehensive income. (q) Borrowing costs Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or completed. (r) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted by the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the statement of financial position and their tax bases. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at the end of each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 104 Malakoff Corporation Berhad

107 3. Property, plant and equipment office Asset c- equipment Freehold Leasehold under Power Inspection Plant and and Motor land land Buildings construction plant costs machinery furniture vehicles Computers Total Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 January ,516 13,182 27,789 9,515 12,093, ,049 55,372 70,463 5,918 46,585 12,795,791 Additions 20,061 6,645 41, , ,268 88,158 Write-off (3,912) (3,912) Reclassification (2,062) 2,062 At 31 December 2011/1 January ,516 13,182 27,789 27,514 12,100, ,016 52,170 76,227 6,723 60,853 12,880,037 Additions 2 1,834,163* 13,795 83,754 33,762 5,492 1,077 4,729 1,976,774 Write-off (1,774) (1,774) Reclassification (22,408) 22,408 At 31 December ,516 13,182 27,791 1,837,495 12,113, , ,340 81,719 7,800 65,582 14,855,037 *Includes interest capitalised of RM96,355,000 (2011: RM nil). Accumulated Depreciation At 1 January ,026 11,971 2,618, ,467 16,625 48,555 4,610 40,381 3,066,912 Depreciation for the year 135 1, ,631 75,625 2,969 8, , ,546 Write-off (1,213) (1,213) At 31 December 2011/1 January ,161 13,324 2,966, ,092 18,381 57,047 5,253 47,079 3,510,245 Depreciation for the year 136 1, ,312 66,569 2,704 9, , ,632 At 31 December ,297 14,662 3,314, ,661 21,085 66,399 5,872 54,681 3,945,877 Carrying amount At 1 January ,516 11,156 15,818 9,515 9,475, ,582 38,747 21,908 1,308 6,204 9,728,879 At 31 December 2011/1 January ,516 11,021 14,465 27,514 9,133,139 93,924 33,789 19,180 1,470 13,774 9,369,792 At 31 December ,516 10,885 13,129 1,837,495 8,799, ,109 87,255 15,320 1,928 10,901 10,909, Malakoff Corporation Berhad

108 Notes to the consolidated financial statements (continued) 3. Property, plant and equipment (continued) office Assets and Freehold Leasehold under Plant and equipment Motor Company land land Buildings construction machinery furniture vehicles Computers Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 January ,516 6,159 17, ,439 1,232 7,765 59,320 Additions Disposals (644) (644) At 31 December 2009/1 January ,516 5,515 17, ,467 1,232 7,977 58,916 Additions 1, ,131 Write-off (387) (387) At 31 December 2010/1 January ,516 5,515 17,055 1, ,053 1,315 8,462 61,660 Additions ,290 2,171 Reclassifications (1,590) 1,590 At 31 December 2011/1 January ,516 5,515 17, ,014 1,825 9,752 63,831 Additions 1, ,491 At 31 December ,516 5,515 17,055 1, ,098 1,825 10,696 66, Malakoff Corporation Berhad

109 3. Property, plant and equipment (continued) office Assets Plant equipment Freehold Leasehold under and and Motor Company land land Buildings construction machinery furniture vehicles Computers Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Accumulated Depreciation At 1 January , ,196 1,114 6,505 16,464 Depreciation for the year ,182 Disposals (54) (54) At 31 December 2009/ 1 January , ,728 1,148 7,261 18,592 Depreciation for the year ,410 Write-off (387) (387) At 31 December 2010/ 1 January , , ,784 20,615 Depreciation for the year ,341 At 31 December 2011/ 1 January , ,344 1,045 8,395 22,956 Depreciation for the year ,790 At 31 December , ,255 1,256 9,205 25,746 Carrying amount At 1 January ,516 5,454 12,265 2, ,260 42,856 At 31 December 2009/ 1 January ,516 4,804 11,465 1, ,324 At 31 December 2010/ 1 January ,516 4,747 10,664 1,590 1, ,045 At 31 December 2011/ 1 January ,516 4,689 9,863 2, ,357 40,875 At 31 December ,516 4,632 9,062 1,463 1, ,491 40,576 Securities At 31 December 2012, the Group s properties with a carrying amount of RM10,664,800,000 (31 December 2011: RM9,150,241,000) were charged as securities for debt securities issued by the subsidiaries (see Note 15 loans and borrowings). 107 Malakoff Corporation Berhad

110 Notes to the consolidated financial statements (continued) 4. Intangible assets Subsidiaries Associates Interest over Interest over Power Purchase Power Purchase and Operation and Power and and Maintenance water Purchase Group goodwill Agreements Total Goodwill Agreements Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 January 2011/31 December 2011/ 1 January ,232 7,103,796 7,112, , ,970 Addition 548, , ,583 81, ,686 At 31 December ,232 7,651,870 7,660, , ,073 1,204,656 Amortisation and impairment loss At 1 January ,360,511 1,361, , ,947 Amortisation for the year 398, ,656 35,194 35,194 Impairment loss 44,123 44,123 At 31 December 2011/1 January ,759,167 1,760, , ,264 Amortisation for the year 401, ,555 38,538 38,538 At 31 December ,160,722 2,161, , ,802 Carrying amount At 1 January ,373 5,743,285 5,750, , ,023 At 31 December 2011/1 January ,373 5,344,629 5,352, , ,706 At 31 December ,373 5,491,148 5,498, , , , Malakoff Corporation Berhad

111 4. Intangible assets (continued) Intangible assets arising from interest over Power Purchase, Power and Water Purchase and Operation and Maintenance Agreements The Group s revenue is substantially derived from the generation and sale of electricity energy and generating capacity in Malaysia, which is governed by the Power Purchase Agreements ( PPAs ) (together with the Independent Power Producer ( IPP Licenses ) Licence issued by the Ministry of Energy, Water and Communications) and Power and Water Purchase Agreement ( PWPA ) held by the respective power generating subsidiaries and associates. In addition, part of the Group s revenue is also generated from the operations and maintenance of the power plants, which is governed by the Operation and Maintenance Agreements ( OMAs ) held by the operations and maintenance subsidiaries. The Group has identified the cash flows to be generated from the PPAs (together with the IPP Licences), PWPA and the OMAs as Intangible Assets. The PPAs, and the IPP Licences are recognised as a single asset in accordance with MFRS 138 Intangible Assets in view that both are required for the generation and sale of electricity energy and generating capacity in Malaysia. There are six (6) PPAs (together with the respective IPP Licences) held respectively by the Group s power generating subsidiaries of Segari Energy Ventures Sdn. Bhd. ( SEV ), GB3 Sdn. Bhd. ( GB3 ), Prai Power Sdn. Bhd. ( PPSB ) and Tanjung Bin Power Sdn. Bhd. ( TBP ) and associates Kapar Energy Ventures Sdn. Bhd. ( KEV ), and Port Dickson Power Berhad ( PDP ); one (1) PWPA held by an associate, Hidd Power Company B.S.C ( HPC ); and four (4) OMAs held by the Group s operations and maintenance subsidiaries of Teknik Janakuasa Sdn. Bhd. ( TJSB ), Natural Analysis Sdn. Bhd. ( NASB ) and Tanjung Bin O&M Berhad ( TBOM ). These PPAs, PWPA and OMAs are the key documents that govern the underlying strength of the Group s cash flow, which provide for, inter alia, the electricity tariff, supply, operations and maintenance and all other terms to be met by the subsidiaries and associates. Measurement The fair value of the Intangible Assets arising from the PPAs, PWPA and OMAs were measured using the Multi-Period Excess Earnings Method ( MEEM ) under the income method. The underlying rationale in the MEEM was that the fair value of an Intangible Asset represents the present value of the net income after taxes attributable to the Intangible Asset. The net income attributable to the Intangible Asset was the excess income after charging a fair return on and of all the assets that are necessary (contributory assets) to realise the net income. The contributory asset charges ( CAC ) were based on the fair value of each contributory asset and represent the return on the assets. The assumption in calculating the CAC was that the owner of the Intangible Asset rents or leases the contributory assets from a hypothetical third party in an arm s length transaction in order to be able to derive income from the Intangible Asset. The present value of the expected income attributable to the Intangible Assets less CAC and taxes represents the value of the Intangible Asset. The management had applied the following key assumptions in deriving the present value of the net income after taxes attributable to the Intangible Assets at the acquisition date: Remaining useful life of PPAs/OMAs years (in accordance with the respective PPAs, PWPA and OMAs) Dependable Capacity :-Power 350 MW 2,420 MW :-Water 17,047 m³/hour Capacity Factor :-Power 45% 75% of DC :-Water 91% 99% of DC 109 Malakoff Corporation Berhad

112 Notes to the consolidated financial statements (continued) 4. Intangible assets (continued) Measurement (continued) Net Output :-Electrical (million kw/hour) 2,017 11,197 :-Water (thousand m³) 67,370 73,771 Capacity Rate :-Power (RM/kW/month) :-Water (RM/m³/month) 1,222 1,339 Fixed Operating Rate under Revenue (RM/kW/month) Variable Operating Rate under Revenue :-Power (RM/kW/month) :-Water (RM/m³/month) Fuel price (RM/mmBtu) CAC 17.77% 28.00% of EBITDA In applying the MEEM valuation methodology, the expected cash flows were discounted to their present value equivalent using a rate of return that reflects the relative risk of the cash flows, as well as the time value of money. This was calculated by weighing the required returns on debt and equity in proportion to their assumed percentages. The applied post-tax discount rate was range from 9% to 10% (2011: 9.09%) per annum. Amortisation The Intangible Assets with finite useful lives are amortised based on the Net Electrical Output generated from the PPA companies and Fixed Operation and Maintenance income generated from the OMA companies as management is of the view that this basis best represents the pattern in which the Intangible Assets future economic benefits are expected to be consumed by the Group. The amortisation is charged to other operating expenses in the statement of profit or loss and other comprehensive income. 110 Malakoff Corporation Berhad

113 4. Intangible assets (continued) Impairment testing for cash generating units ( CGUs ) containing goodwill and interest over Power Purchase, Power and Water Purchase and Operation and Maintenance Agreements The carrying amounts of the goodwill and the interest over Power Purchase, Power and Water Purchase and Operation and Maintenance agreements are allocated to the following CGUs: Impairment Allocated loss for Carrying amount Goodwill amount the year RM 000 RM 000 RM 000 RM 000 PPA Companies GB PPSB SEV 1,565 1,565 1,565 TBP 3,159 3,159 3,159 5,493 5,493 5,493 PWPA Company HPC 265, ,583 OMA Companies TJSB 1,577 1,577 1,577 NASB ,880 1,880 1,880 Total goodwill 272, ,956 7,373 Less: Goodwill in an associate (265,583) (265,583) 7,373 7,373 7, Malakoff Corporation Berhad

114 Notes to the consolidated financial statements (continued) 4. Intangible assets (continued) Impairment testing for cash generating units ( CGUs ) containing goodwill and interest over Power Purchase, Power and Water Purchase and Operation and Maintenance Agreements (continued) Interest over PPA, PWPA and OMA Allocated Impairment loss carrying amount amount RM 000 RM 000 RM 000 RM 000 RM 000 PPA Companies GB3 254, , ,315 PPSB 256, , ,213 SEV 745, , ,903 TBP 2,486,035 2,486,035 2,614,829 KEV 186,513 (44,123) 186, ,706 3,928,400 (44,123) 3,928,400 4,281,966 PWPA Company HPC 77,758 77,758 OMA Companies TJSB 1,171,805 1,171,805 1,250,639 NASB 31,587 31,587 33,730 TBOM 545, ,869 1,749,261 1,749,261 1,284,369 Total interest over PPAs, PWPA and OMAs 5,755,419 (44,123) 5,755,419 5,566,335 Less: Intangible assets in associates (264,271) 44,123 (264,271) (221,706) 5,491,148 5,491,148 5,344, Malakoff Corporation Berhad

115 4. Intangible assets (continued) The impairment test of the above CGUs was based on the expected cash flows discounted to their present value equivalent using a rate of return that reflects the relative risk of the cashflows, as well as the time value of money. This is calculated by weighing the required returns on debt and equity in proportion to their assumed percentages. The applied post-tax discount rate was 7.50% per annum. The management had applied the following key assumptions in deriving the present value of the net cash flow after taxes attributable to the Intangible Assets: It is assumed that the terms of the PPAs will remain unchanged throughout the concession period. It is assumed that HPC will obtain an approval for 10 year extension to its PWPA upon expiry. Remaining useful life of PPAs/PWPA/OMAs years (in accordance with the respective PPAs, PWPA and OMAs) Dependable Capacity (DC) :-Power 350MW 2,420MW (in accordance to the specifications of the respective plants) :-Water 17,047 m³/hour Capacity Factor :-Power 2% 82% of DC :-Water 91% 99% of DC Net Output :-Electrical (million kw/hour) 1,020 15,165 :-Water (thousand m³) 67,370 73,771 Capacity Rate :-Power (RM/kW/month) :-Water (RM/m³/month) 1,222 1,339 Fixed Operating Rate under Revenue Power (RM/kW/month) Variable Operating Rate under Revenue :-Power (RM/kW/month) :-Water (RM/m³/month) Fuel price (RM/mmBtu) Variable Operating Rate under Cost Power (RM/kW/month) Fixed Operating Rate under Cost Power (RM/kW/month) As at 31 December 2012, the estimated recoverable amount of all the CGUs exceeds the carrying amount of the goodwill and interest on PPAs/PWPA/OMAs. In 2011, an impairment loss of RM44,123,000 was recognised in relation to the Group s interest in an associate. 113 Malakoff Corporation Berhad

116 Notes to the consolidated financial statements (continued) 5. Prepaid lease payments Leasehold land Group unexpired period less than 50 years RM 000 Cost At 1 January 2011/31 December 2011/ 1 January 2012/31 December ,326 Amortisation 1 January ,618 Amortisation for the year 4,344 At 31 December 2011/1 January ,962 Amortisation for the year 4,343 At 31 December ,305 Carrying amounts At 1 January ,708 At 31 December 2011/1 January ,364 At 31 December , Investment in subsidiaries 31 December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Unquoted: At 1 January 8,131,943 8,132,555 8,132,555 8,132,555 8,128,970 Addition 5,771 Fair value on initial recognition of unsecured loan stocks in a subsidiary 3,585 Fair value adjustment (319) (612) At 31 December 8,137,395 8,131,943 8,132,555 8,132,555 8,132, Malakoff Corporation Berhad

117 6. Investments in subsidiaries (continued) Details of subsidiaries are as follows: < Effective interest (%) > Country of 31 December 1 January No. Name of subsidiary incorporation Principal activities DIRECT SUBSIDIARY 1. Segari Energy Ventures Malaysia Design, construction, operation Sdn. Bhd. and maintenance of a combined cycle power plant, generation and sale of electrical energy and generating capacity of the power plant 2. GB3 Sdn. Bhd. Malaysia Design, construction, operation and maintenance of a combined cycle power plant, generation and sale of electrical energy and generating capacity of the power plant 3. Prai Power Sdn. Bhd. Malaysia Design, construction, operation and maintenanceof a combined cycle power plant, generation and sale of electrical energy and generating capacity of the power plant 4. Tanjung Bin Power Malaysia Design, engineering, procurement, Sdn. Bhd. construction, installation and commissioning, testing, operation and maintenance of a 2,100 MW coal fired electricity generating facilities and sale of electrical energy and generating capacity of the power plant 5. Hypergantic Sdn. Bhd. Malaysia Investment holding 6. Tanjung Bin Energy Malaysia Design, engineering, procurement, Sdn. Bhd. construction, installation and commissioning, testing, operation and maintenance of a 1,000 MW coal fired electricity generating facilities 7. Teknik Janakuasa Malaysia Operation and maintenance of power Sdn. Bhd. plants 8. Malakoff Utilities Sdn. Malaysia Build, own and operate an electricity Bhd. (formerly known distribution system and a centralised as Wirazone Sdn. Bhd.) chilled water plant system 115 Malakoff Corporation Berhad

118 Notes to the consolidated financial statements (continued) 6. Investments in subsidiaries (continued) Details of subsidiaries are as follows: (continued) < Effective interest (%) > Country of 31 December 1 January No. Name of subsidiary incorporation Principal activities DIRECT SUBSIDIARY (continued) 9. Malakoff Engineering Malaysia Provision of engineering and project Sdn. Bhd. management services 10. Spring Assets Limited British Virgin Dormant Islands 11. Malakoff Capital (L) Malaysia Dormant Limited 12. Malakoff International Cayman Offshore Investment holding Limited Islands 13. Tuah Utama Sdn. Bhd. Malaysia Investment holding 14. Desa Kilat Sdn. Bhd. Malaysia Land reclamation, development and/or sale of reclaimed land 15. Malakoff Power Berhad Malaysia operations and maintenance of power plants 16. Malakoff R&D Sdn. Bhd. Malaysia Dormant INDIRECT SUBSIDIARY Held through Tanjung Bin Energy Sdn. Bhd. 17. Tanjung Bin Energy Malaysia Administer and manage the Issuer Berhad development of a 1,000 MW coal fired electricity generating facility Held through Teknik Janakuasa Sdn. Bhd. 18. Natural Analysis Sdn. Bhd. Malaysia operation and maintenance of power plants 19. TJSB Services Sdn. Bhd. Malaysia Provision of operation and maintenance and any related services to the power plants and/or other utility plants 20. TJSB International Limited Cayman Offshore Investment holding Islands 21. TJSB Global Sdn. Bhd. Malaysia Investment holding 116 Malakoff Corporation Berhad

119 6. Investments in subsidiaries (continued) Details of subsidiaries are as follows: (continued) < Effective interest (%) > Country of 31 December 1 January No. Name of subsidiary incorporation Principal activities INDIRECT SUBSIDIARY (continued) Held through TJSB International Limited 22. TJSB International British Virgin Offshore Investment holding (Shoaiba) Limited Islands 23. TJSB Middle East British Virgin Operation and maintenance of power Limited Islands plant Held through Malakoff Engineering Sdn. Bhd. 24. MESB Project Malaysia Dormant Management Sdn. Bhd Held through Malakoff International Limited 25. Malakoff Gulf Limited British Virgin Offshore Investment holding Islands 26. Malakoff Technical British Virgin Offshore Investment holding (Dhofar) Limited Islands 27. Malakoff AlDjazair Malaysia Investment holding Desal Sdn. Bhd. 28. Malakoff Jordan British Virgin ^ Offshore Investment holding Generation Limited Islands 29. Malakoff Oman British Virgin Dormant Desalination Company Islands Limited (formerly known as Malakoff Ras Azzour Limited) 30. Malakoff Hidd Holding Guernsey 100 Asset, property, investment, intellectual Company Limited property and other holding companies (formerly known as IP Middle East Holding Company Limited) Held through Malakoff AlDjazair Desal Sdn. Bhd. 31. Tlemcen Desalination France Offshore Investment holding Investment Company AAS* 117 Malakoff Corporation Berhad

120 Notes to the consolidated financial statements (continued) 6. Investments in subsidiaries (continued) Details of subsidiaries are as follows: (continued) < Effective interest (%) > Country of 31 December 1 January No. Name of subsidiary incorporation Principal activities INDIRECT SUBSIDIARY (continued) Held through Malakoff Hidd Holding Company Limited 32. Malakoff Summit Hidd Guernsey Asset, property, investment, intellectual Holding Company property and other holding companies Limited (formerly known as IPSUM Hidd Holding Company Limited) Held through Malakoff Power Berhad 33. Tanjung Bin O&M Malaysia 100 Operation and maintenance of power Berhad (formerly plants known as Sterling Asia Berhad) * Audited by other member firm of KPMG International ^ Disposal made during the financial year (Note 34 (b)) 7. Investments in associates 31 December Group RM 000 RM 000 At cost Unquoted shares: in Malaysia 41,475 41,475 outside Malaysia 1,254 46,756 Unquoted preference shares: in Malaysia 4,000 4,000 Unquoted loan stocks: in Malaysia 357, ,455 outside Malaysia 151, ,878 Pre-acquisition reserves 66,775 66,775 Share of post-acquisition reserves 251, , , , Malakoff Corporation Berhad

121 7. Investments in associates (continued) 31 December Group RM 000 RM 000 Add: Intangible assets acquired through business combination (see Note 4) Goodwill 265,583 Interest over PPA and PWPA 939, ,970 1,204, ,970 Less: Amortisation of intangible assets At 1 January (172,618) (137,424) Amortisation for the year (38,538) (35,194) At 31 December (211,156) (172,618) Less: Impairment loss on intangible assets At 1 January (463,646) (419,523) Impairment loss for the year (44,123) At 31 December (463,646) (463,646) Carrying amount 529, ,706 1,403,579 1,145, December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 At cost Unquoted shares: in Malaysia 641, , , , ,770 Unquoted loan stocks: in Malaysia 357, , , , ,030 At 31 December 998, , , ,800 1,006, Malakoff Corporation Berhad

122 Notes to the consolidated financial statements (continued) 7. Investments in associates (continued) The summarised financial information of the associates, not adjusted for the proportion of the ownership interest held by the Group, are as follows: < % > Revenue Profit/(Loss) Total assets Total liabilities Group RM 000 RM 000 RM 000 RM December ,277, ,418 16,287,591 14,907, December ,407, ,116 18,733,186 17,525, December ,411, ,408 16,331,713 16,894, December ,903,310 (116,229) 8,068,957 7,548,397 1 January ,923,034 6,158,034 Details of associates are as follows: < Effective interest (%) > Country of 31 December 1 January No. Name of associate incorporation Principal activities Port Dickson Malaysia Supply electricity exclusively Power Berhad to TNB 2. Kapar Energy Malaysia Generation and sale of electricity Ventures Sdn. Bhd. 3. Lekir Bulk Terminal Malaysia Development, ownership and Sdn. Bhd. management of dry bulk terminal 4. Malaysian Shoaiba Malaysia Investment holding Consortium Sdn. Bhd. 5. Saudi-Malaysia Water Saudi Offshore Investment holding & Electricity Arabia Company Limited 6. Shuaibah Water & Saudi Design, construction, Electricity Company Arabia commissioning, testing, possession, Limited operation and maintenance of crude oil fired power generation and water desalination plant 120 Malakoff Corporation Berhad

123 7. Investments in associates (continued) Details of associates are as follows: (continued) < Effective interest (%) > Country of 31 December 1 January No. Name of associate incorporation Principal activities Shuaibah Expansion Saudi Development, construction, Holding Company Arabia ownership, operation and Limited maintenance of Shuaibah Phase 3 Expansion independent water producer ( IWP ) and transport and sale of water and undertake all works and activities related thereto, directly or through another company holding most of its shares or stock 8. Shuaibah Expansion Saudi Development, construction, Project Company Arabia possession, operation and Limited maintenance of the Shuaibah Phase 3 Expansion IWP, transfer and sell water and all relevant works and activities 9. Oman Technical British Offshore Investment holding Partners Limited Virgin Islands 10. Salalah Power Bermuda Offshore Investment holding Holdings Limited 11. Dhofar Power oman Electricity generation, 20 Company SAOG transmission, distribution in the region of Salalah, Oman 12. Enara Energy Jordan Offshore Investment holding ^ Investment Company 13. Central Electricity Jordan Generate electrical energy ^ Generating in different regions of Jordan Company Limited 14. Al-Imtiaz Operation Saudi Implementation of operation and Maintenance Arabia and maintenance contracts Company Limited for stations of electrical power generation and water desalination 121 Malakoff Corporation Berhad

124 Notes to the consolidated financial statements (continued) 7. Investments in associates (continued) Details of associates are as follows: (continued) < Effective interest (%) > Country of 31 December 1 January No. Name of associate incorporation Principal activities Saudi Malaysia Saudi Operation and maintenance Operation and Arabia of power and water Maintenance Services desalination plant Company Limited 16. Hyflux-TJSB Algeria SPA Algeria Operation and maintenance of water desalination plant 17. Hidd Power Company Bahrain Building, operating and 39.97* B.S.C maintenance of power and water stations for special purpose (specific supply only) ^ Disposal made during the financial year (Note 34(b)) * Acquisition made during the financial year (Note 34(a)) 8. Investment in a jointly-controlled entity 31 December Group RM 000 RM 000 At cost Unquoted shares, outside Malaysia 64,118 64,118 Share of post-acquisition reserves (16,685) (18,614) 47,433 45,504 Details of jointly-controlled entity is as follows: < Effective interest (%)------> Country of 31 December Name incorporation Principal activities Almiyah Attilemcania SPA Algeria construction, operation and management of a sea water desalination plant and marketing the desalinated water produced 122 Malakoff Corporation Berhad

125 8. Investment in a jointly-controlled entity (continued) The summarised information of the jointly-controlled entity, not adjusted for the proportion of the ownership interest held by the Group, is as follows: Profit/ Total Total Revenue (Loss) assets liabilities RM 000 RM 000 RM 000 RM December ,170 5, , , December ,225 (52,140) 701, , Other investments 31 December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Non-current Unquoted loan stocks in subsidiaries, unsecured 1,027,419 1,130,594 1,364,654 1,411,495 1,665,471 The loan stocks are unsecured and bear interest at a rate ranging from 6% to 16% per annum and are repayable over a period of 27 years. 123 Malakoff Corporation Berhad

126 Notes to the consolidated financial statements (continued) 10. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net 31 December 31 December 31 December Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Deferred tax Property, plant and equipment (2,165,541) (2,098,125) (2,165,541) (2,098,125) Provisions 64,930 57,682 64,930 57,682 Intangibles (1,293,661) (1,403,141) (1,293,661) (1,403,141) Unutilised capital allowances 650, , , ,059 Deferred income 597, , , ,860 Others 2,244 2,244 2,244 2,244 Tax assets/(liabilities) 1,314,646 1,334,845 (3,459,202) (3,501,266) (2,144,556) (2,166,421) Set-off of tax (708,960) (802,536) 708, ,536 Net tax assets/(liabilities) 605, ,309 (2,750,242) (2,698,730) (2,144,556) (2,166,421) Movements in deferred tax assets and liabilities during the year are as follows: Recognised At Recognised At in profit / in profit At or loss or loss Group (Note 24) (Note 24) RM 000 RM 000 RM 000 RM 000 RM 000 Deferred tax assets Provisions 39,068 18,614 57,682 7,248 64,930 Unutilised capital allowances 761,607 (11,548) 750,059 (99,863) 650,196 Deferred income 450,509 74, ,860 72, ,276 Others 734 1,510 2,244 2,244 Tax assets 1,251,918 82,927 1,334,845 (20,199) 1,314,646 Set-off of tax (793,669) (8,867) (802,536) 93,576 (708,960) Net tax assets 458,249 74, ,309 73, , Malakoff Corporation Berhad

127 10. Deferred tax assets and liabilities (continued) Recognised deferred tax assets and liabilities (continued) Movements in deferred tax assets and liabilities during the year are as follows: (continued) Recognised At Recognised At in profit / in profit At or loss or loss Group (Note 24) (Note 24) RM 000 RM 000 RM 000 RM 000 RM 000 Deferred tax liabilities Property, plant and equipment (1,948,157) (149,968) (2,098,125) (67,416) (2,165,541) Intangibles (1,523,479) 120,338 (1,403,141) 109,480 (1,293,661) Tax liabilities (3,471,636) (29,630) (3,501,266) 42,064 (3,459,202) Set-off of tax 793,669 8, ,536 (93,576) 708,960 Net tax liabilities (2,677,967) (20,763) (2,698,730) (51,512) (2,750,242) Recognised deferred tax assets and liabilities Deferred and liabilities are attributable to the following: 31 December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Deferred tax liabilities Provisions 15,899 14,854 14,854 20,185 20,185 Movements in deferred and liabilities during the year are as follows: Recognised At Recognised At Recognised At Recognised At in profit / in profit / in profit / in profit At or loss or loss or loss or loss Company (Note 24) (Note 24) (Note 24) (Note 24) RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Deferred tax liabilities Provisions 20,185 20,185 (5,331) 14,854 14,854 1,045 15, Malakoff Corporation Berhad

128 Notes to the consolidated financial statements (continued) 11. Trade and other receivables 31 December Group Note RM 000 RM 000 Non-current Other receivables ,083 Current Trade Trade receivables ,041,886 1,092,752 Less: Allowance for impairment loss (57,094) (56,450) 984,792 1,036,302 Non-trade Amount due from an associate , ,635 Other receivables 136, ,583 Deposits 65,475 27,944 Prepayments 34,938 29, , ,961 1,490,171 1,441,263 1,629,254 1,441, December 1 January Company Note RM 000 RM 000 RM 000 RM 000 RM 000 Current Non-trade Amount due from subsidiaries 891, , , , ,400 Amount due from an associate , , , , ,012 Other receivables 11,963 12,793 14,494 9,604 6,959 Deposits 3, Prepayments 64,266 72,484 1,175, , , , , Malakoff Corporation Berhad

129 11. Trade and other receivables (continued) 11.1 Other receivables Other receivables represent the transaction costs which arose from derivative instruments, which will be amortised systematically over the tenure of the hedged item Trade receivables Included in trade receivables of the Group is amount owing from an entity that is under common control by the Government of Malaysia (a party that has direct or indirect significant influence on the Group) as at the reporting period as follows: Gross Gross balance balance outstanding outstanding RM 000 RM 000 Tenaga Nasional Berhad 1,035,038 1,065, Amount due from an associate The amount due from an associate relates to interest receivable subject to the existing terms of the unsecured loan stocks. 12. Inventories 31 December Group RM 000 RM 000 At cost Spares and consumables 442, ,398 Coal 193, ,373 Diesel fuel 73,016 67, , , Malakoff Corporation Berhad

130 Notes to the consolidated financial statements (continued) 13. Cash and cash equivalents 31 December Group RM 000 RM 000 Deposits with licensed banks and other licensed corporations 5,066,330 3,050,420 Cash and bank balances 87,640 51,674 5,153,970 3,102, December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Deposits with licensed banks 377, , , , ,590 Cash and bank balances 3,120 5,418 4,077 48,658 3, , , , , ,115 Included in cash and cash equivalents of the Group and of the Company are amounts that are placed with licensed banks which are under common control by the Government of Malaysia (a party that has direct or indirect significant influence on the Group and on the Company) as at the reporting periods as follows: 31 December Group RM 000 RM 000 Deposits with licensed banks and other licensed corporations 3,632,052 2,313, December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Deposits with licensed banks 381, , , , ,353 Deposits placed with licensed banks pledged for a bank facility In 2011, the deposits placed with licensed banks was RM16,323,000. The deposits were pledged for a bank facility granted to the Group and the Company. 128 Malakoff Corporation Berhad

131 14. Capital and reserves 14.1 Share capital Number Number Group Amount of shares Amount of shares RM RM Authorised: Ordinary shares of RM1 each 490, , , ,000 Redeemable convertible non-cumulative preference shares of RM0.10 each 10, ,000 10, ,000 Issued and fully paid: Ordinary shares of RM1 each: At beginning/end of the year 351, , , ,344 Redeemable convertible non-cumulative preference shares of RM0.10 each: At beginning/end of the year 4,179 41,792 4,179 41, , , , , December 1 January Number Number Number Number Number Company Amount of shares Amount of shares Amount of shares Amount of shares Amount of shares RM RM RM RM RM Authorised Ordinary shares of RM1 each 490, , , , , , , , , ,000 Redeemable convertible non-cumulative preference shares of RM0.10 each 10, ,000 10, ,000 10, ,000 10, ,000 10, ,000 Issued and fully paid Ordinary shares of RM1 each: At beginning /end of the year 351, , , , , , , , , ,344 Redeemable convertible non-cumulative preference shares of RM0.10 each: At beginning of the year 4,179 41,792 4,179 41,792 4,179 41,792 5,019 50,192 5,019 50,192 Redemption for the year (840) (8,400) At end of the year 4,179 41,792 4,179 41,792 4,179 41,792 4,179 41,792 5,019 50, , , , , , , , , , , Malakoff Corporation Berhad

132 Notes to the consolidated financial statements (continued) 14. Capital and reserves (continued) 14.2 Ordinary shares The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company Redeemable convertible non-cumulative preference shares Holders of redeemable convertible (at the option of the Company in the event the Company is listed on Bursa Malaysia) non-cumulative preference shares receive a non-cumulative gross dividend of RM1 per share at the Company s discretion or whenever dividends to ordinary shareholders are declared. They do not have the right to participate in any additional dividends declared for ordinary shareholders. Preference shares do not carry the right to vote except for variation of holders rights to the class of shares, proposal to wind up and during the winding up of the Company, proposal to reduce the share capital of the Company and on the proposal for the disposal of the whole Company s property, business or undertaking. The preference shares shall rank equally among themselves in all respects and shall rank in senior to the ordinary shares but junior to the Junior Sukuk Foreign currency translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of the Group entities with functional currencies other than RM, as well as from the translation of liabilities that hedge the Company s net investment in a foreign subsidiary Capital redemption reserve The Company had on 1 October 2009 redeemed 8,400,000 Redeemable Convertible Preference Shares ( RCPS ) at a redemption price of RM10.00 per share comprising the nominal amount of RM0.10 each and premium of RM9.90 each to the RCPS holders registered in the Company s Register of Members. The redemption of the RCPS was made proportionately in respect of each holding of RCPS, fully paid out from the retained profits and share premium account of the Company. In accordance with the requirement of Section 67A of the Companies Act, 1965, an amount equivalent to the nominal value of the RCPS totalling RM840,000 was transferred from the retained profits to the capital redemption reserve Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedges related transactions that have not yet occurred. 130 Malakoff Corporation Berhad

133 15. Loans and borrowings 31 December Group RM 000 RM 000 Non-current Secured Al-Bai Bithaman Ajil ( ABBA ) bonds 130, ,000 Al-Istisna bonds 193, ,871 Istisna medium term notes 3,140,000 Sukuk Ijarah medium term notes 3,508,439 Sukuk medium term notes 4,641,439 5,300,173 Senior Sukuk Murabahah 3,290,000 USD term loan 266,989 Unsecured Junior EBL term loan 330,103 Junior Sukuk 1,749,111 Subordinated loan notes 61, ,917 Unrated Junior Sukuk Musharakah 1,800,000 14,221,261 10,815,072 Current Secured Commercial papers 398,840 Sukuk medium term notes 700,000 Sukuk Ijarah bonds 269,051 ABBA bonds 120, ,000 Al-Istisna bonds 63,639 63,549 Istisna medium term notes 590,000 Sukuk Ijarah medium term notes 150,000 USD term loan 8,258 Unsecured Subordinated loan notes 1,362 1,041,897 1,442,802 15,263,158 12,257, Malakoff Corporation Berhad

134 Notes to the consolidated financial statements (continued) 15. Loans and borrowings (continued) 31 December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Non-current Secured Sukuk medium term notes 4,641,439 5,300,173 5,258,089 5,249,384 5,202,250 Unsecured Junior Sukuk 1,749,111 1,749,111 1,700,000 1,700,000 Unrated Junior Sukuk Musharakah 1,800,000 6,441,439 7,049,284 7,007,200 6,949,384 6,902,250 Current Secured Commercial papers 398, , , ,292 Sukuk medium term notes 700, , , , , ,292 7,141,439 7,448,124 7,501,340 7,543,583 7,493,542 Security As at 31 December 2012, the commercial papers, bonds, medium term and loan notes of the Group were secured over property, plant and equipment with a carrying amount of RM10,664,800,000 (31 December 2011: RM9,150,241,000). 132 Malakoff Corporation Berhad

135 15. Loans and borrowings (continued) Significant covenants The borrowings are subject to the fulfillment of the following significant covenants: i) Sukuk Ijarah bonds issued by a subsidiary In 2011, a subsidiary was required to maintain a debt-to-equity ratio of not more than 4:1 and a finance service cover ratio of at least 1.15 times. The Sukuk Ijarah bonds has been fully redeemed during the year. ii) iii) iv) ABBA bonds issued by a subsidiary Maintain a debt-to-equity ratio of not more than 9:1 during post-completion (of the power plant) period and a debt service cover ratio of at least 1.25 times commencing from the commercial operation date. Al-Istisna bonds issued by a subsidiary Maintain a debt-to-equity ratio of not more than 4:1 and an annual finance service ratio of at least 1.4 times commencing from the third year of the first issuance of the bonds. Istisna medium term notes issued by a subsidiary In 2011, a subsidiary was required to maintain a debt-to-equity ratio of not more than 4:1 and a debt service cover ratio of at least 1.25 times commencing from the second semi-annual profit payments date. The Istisna medium term notes has been fully redeemed during the year. v) Sukuk Ijarah medium term notes issued by a subsidiary The Sukuk Ijarah medium term notes was issued by a subsidiary during the financial year. The subsidiary is required to maintain a debt-to-equity ratio of not more than 80:20 and a finance service cover ratio of at least 1.25 times. vi) vii) Sukuk medium term notes, Junior Sukuk and commercial papers issued by the Company In 2011, the Company was required to maintain a debt-to-equity ratio of not more than 1.25:1 and the Group debt-toequity ratio of not more than 7:1. The Junior Sukuk and commercial papers have been fully redeemed during the financial year. The terms for Sukuk medium term notes and commercial papers remain unchanged. USD term loan drawdown by a subsidiary The USD term loan was drawdown by a subsidiary during the financial year. The subsidiary is required to maintain a debtto-equity ratio of the Guarantor (the Company) of not more than 1.25:1 and a Group debt-to-equity ratio of not more than 7:1. viii) Junior term loan facility drawdown by a subsidiary The Junior term loan facility was drawdown by a subsidiary during the financial year. The subsidiary is required to maintain a debt-to-equity ratio of the Original Sponsor (the Company) of not more than 1.25:1 and a Group debt-to-equity ratio of not more than 7:1. ix) Senior Sukuk Murabahah issued by a subsidiary The Senior Sukuk Murabahah was issued by a subsidiary during the financial year. The subsidiary is required to maintain a debt-to-equity ratio of not exceed 80:20 and a finance service cover ratio of not less than 1.05: Malakoff Corporation Berhad

136 Notes to the consolidated financial statements (continued) 15. Loans and borrowings (continued) Terms and debt repayment schedule carrying Under Over 5 Group year of amount year years years years maturity RM 000 RM 000 RM 000 RM 000 RM December 2012 Secured ABBA bonds , , ,000 Al-Istisna bonds ,870 63,639 63, ,495 Sukuk Ijarah medium term notes ,658, ,000 3,508,439 Sukuk medium term notes ,341, , ,000 2,100,000 1,841,439 Senior Sukuk Murabahah ,290,000 85,000 3,205,000 USD term loan ,247 8,258 8, ,731 Unsecured Junior EBL term loan , ,103 Subordinated loan notes ,060 61,060 Unrated Junior Sukuk Musharakah ,800,000 1,800,000 15,263,158 1,041, ,994 2,903,329 10,415, December 2011 Secured Commercial papers , ,840 Sukuk Ijarah bonds , ,051 ABBA bonds , , , ,000 Al-Istisna bonds ,420 63,549 63, ,232 Istisna medium term notes ,730, , ,000 1,600, ,000 Sukuk medium term notes ,300, ,000 2,100,000 2,500,173 Unsecured Junior Sukuk ,749,111 1,749,111 Subordinated loan notes ,279 1, ,917 12,257,874 1,442,802 1,473,639 4,023,232 5,318, Malakoff Corporation Berhad

137 15. Loans and borrowings (continued) Terms and debt repayment schedule (continued) carrying Under Over 5 Company year of amount year years years years maturity RM 000 RM 000 RM 000 RM 000 RM December 2012 Secured Sukuk medium term notes ,341, , ,000 2,100,000 1,841,439 Unsecured Unrated Junior Sukuk Musharakah ,800,000 1,800,000 7,141, , ,000 2,100,000 3,641, December 2011 Secured Commercial papers , ,840 Sukuk medium term notes ,300, ,000 2,100,000 2,500,173 Unsecured Junior Sukuk ,749,111 1,749, December 2010 Secured 7,448, , ,000 2,100,000 4,249,284 Commercial papers , ,140 Sukuk medium term notes ,258,089 2,100,000 3,158,089 Unsecured Junior Sukuk ,749,111 1,749, December 2009 Secured 7,501, ,140 2,100,000 4,907,200 Commercial papers , ,199 Sukuk medium term notes ,249,384 1,400,000 3,849,384 Unsecured Junior Sukuk ,700,000 1,700,000 7,543, ,199 1,400,000 5,549, Malakoff Corporation Berhad

138 Notes to the consolidated financial statements (continued) 15. Loans and borrowings (continued) Terms and debt repayment schedule (continued) carrying Under Over 5 Company year of amount year years years years maturity RM 000 RM 000 RM 000 RM 000 RM January 2009 Secured Commercial papers , ,292 Sukuk medium term notes ,202, ,000 4,502,250 Unsecured Junior Sukuk ,700,000 1,700,000 7,493, , ,000 6,202, Employee benefits 31 December Group RM 000 RM 000 Retirement benefits Present value of unfunded obligations 27,143 24,264 Present value of funded obligations 35,467 31,291 Unrecognised actuarial loss (9,129) (6,926) Total present value of obligations 53,481 48,629 Fair value of plan assets (1,701) (2,112) 51,780 46, Malakoff Corporation Berhad

139 16. Employee benefits (continued) 31 December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Retirement benefits Present value of unfunded obligations 5,968 5,253 3,952 3,405 3,318 Present value of funded obligations 11,472 10,031 10,072 9,322 9,785 Unrecognised actuarial loss (2,024) (1,254) (2,287) (2,897) (1,618) Total present value of obligations 15,416 14,030 11,737 9,830 11,485 Fair value of plan assets (528) (677) (966) 14,888 13,353 12,065 10,158 10,519 The Group retirement trust fund (funded plan), Malakoff Retirement Trust Fund, provides pension benefits for the employees upon retirement. Three companies in the Group, namely Malakoff Corporation Berhad, Teknik Janakuasa Sdn. Bhd. and Malakoff Utilities Sdn. Bhd. (formerly known as Wirazone Sdn. Bhd.) participated in making contributions to the Malakoff Retirement Trust Fund. The fair value of the plan assets includes no amount relating to any of the Group s or the Company s own financial instruments nor any property occupied by, or other assets used by the Group and the Company. The major categories of plan assets are as follows: 31 December Group RM 000 RM 000 Equities 834 1,478 Cash, repo and call deposits Bonds 357 Others 5 1,701 2, Malakoff Corporation Berhad

140 Notes to the consolidated financial statements (continued) 16. Employee benefits (continued) 31 December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Equities (295) (295) 677 Cash, repo and call deposits (33) (33) 286 Bonds 111 Others (328) (328) 966 Movement in the present value of the defined benefit obligations 31 December Group RM 000 RM 000 Defined benefit obligations at beginning of the year 48,629 43,348 Benefits paid by the plan (1,092) (3,151) Current service costs and interest 5,944 8,432 Defined benefit obligations at end of the year 53,481 48,629 Company RM 000 RM 000 RM 000 RM 000 Defined benefit obligations at beginning of the year 14,030 11,737 9,830 11,485 Benefits paid by the plan (359) (1,265) (109) (318) Current service costs and interest 1,745 3,558 2,016 (1,337) Defined benefit obligations at end of the year 15,416 14,030 11,737 9, Malakoff Corporation Berhad

141 16. Employee benefits (continued) Movement in the fair value of plan assets Group RM 000 RM 000 Fair value of plan assets at beginning of the year 2,112 2,675 Contributions paid into the plan 1,424 2,415 Benefits paid (1,808) (1,190) Actuarial (losses)/gains (724) 604 Expected return on plan assets 697 (2,392) Fair value of plan assets at end of the year 1,701 2,112 Company RM 000 RM 000 RM 000 RM 000 Fair value of plan assets at beginning of the year 677 (328) (328) 966 Contributions paid into the plan Benefits paid (896) (1,073) (2,301) Actuarial (losses)/gains (4) 1, Expected return on plan assets Fair value of plan assets at end of the year (328) (328) Expenses recognised in profit or loss Group RM 000 RM 000 Current service costs 5,879 5,583 Interest on obligation 3,587 3,150 Actuarial gains (2,825) (346) Expected return on plan assets (697) 45 5,944 8,432 Company RM 000 RM 000 RM 000 RM 000 Current service costs 1,653 1,592 1,226 1,328 Interest on obligation Actuarial losses/(gains) (674) 1, (3,033) Expected return on plan assets (227) (10) (307) 1,745 3,558 2,016 (1,337) The expenses are recognised an administrative expense in profit or loss. 139 Malakoff Corporation Berhad

142 Notes to the consolidated financial statements (continued) 16. Employee benefits (continued) Actuarial assumptions Principal actuarial assumptions at the end of the reporting period: 31 December Group RM 000 RM 000 Discount rate 6.6% 6.6% Salary inflation 7.9% 7.8% Price inflation 3.5% 3.5% 31 December 1 January Company Discount rate 6.6% 6.6% 5.8% 5.8% 5.8% Salary inflation 7.9% 7.8% 6.7% 6.7% 6.7% Price inflation 3.5% 3.5% 3.5% 3.5% 3.5% The overall expected long-term rate of return on assets is 6.5% per annum (2011: 6.5% per annum). The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based exclusively on historical returns, without adjustments. Assumed salary inflation rates have a significant effect on the amounts recognised in the statement of comprehensive income. A single percentage point change in assumed salary inflation trend rates would have the following effects: one One percentage percentage point point Group increase decrease RM 000 RM December 2012 Effect on the aggregate service and interest cost 1,371 (1,163) Effect on defined benefit obligations 7,117 (6,138) 31 December 2011 Effect on the aggregate service and interest cost 1,216 (1,034) Effect on defined benefit obligations 5,901 (5,105) 140 Malakoff Corporation Berhad

143 16. Employee benefits (continued) Actuarial assumptions (continued) one One percentage percentage point point Company increase decrease RM 000 RM December 2012 Effect on the aggregate service and interest cost 363 (310) Effect on defined benefit obligations 1,856 (1,623) 31 December 2011 Effect on the aggregate service and interest cost 322 (276) Effect on defined benefit obligations 1,533 (1,347) 31 December 2010 Effect on the aggregate service and interest cost 304 (260) Effect on defined benefit obligations 1,687 (1,467) 31 December 2009 Effect on the aggregate service and interest cost 272 (233) Effect on defined benefit obligations 1,435 (1,254) Historical information 31 December 1 January Group RM 000 RM 000 RM 000 RM 000 RM 000 Present value of the defined benefit obligation 53,481 48,629 43,348 37,386 33,992 Fair value of plan assets (1,701) (2,112) (2,675) (2,675) (2,715) Deficit 51,780 46,517 40,673 34,711 31, December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Present value of the defined benefit obligation 15,416 14,030 11,737 9,830 11,485 Fair value of plan assets (528) (677) (966) Deficit 14,888 13,353 12,065 10,158 10,519 The Group expects RM4,064,000 in contribution to be paid to the defined benefit plans in Malakoff Corporation Berhad

144 Notes to the consolidated financial statements (continued) 17. Deferred income Group RM 000 RM 000 At beginning of the year 2,099,436 1,802,036 Additions 330, ,492 Credited to profit or loss (41,117) (32,092) At end of the year 2,389,105 2,099,436 Non-current 2,338,602 2,058,319 Current 50,503 41,117 2,389,105 2,099, Trade and other payables 31 December Group Note RM 000 RM 000 Trade Trade payables , ,838 Non-trade Other payables 596,425 41,400 Accrued expenses , ,772 1,095, ,172 1,435, , December 1 January Company Note RM 000 RM 000 RM 000 RM 000 RM 000 Non-trade Other payables 5,474 7,019 4,443 1,626 5,309 Accrued expenses 142, , , , ,845 Amounts due to subsidiaries , , , , , , , , , , Malakoff Corporation Berhad

145 18. Trade and other payables (continued) 18.1 Trade payables Included in trade payables of the Group are amounts owing to entities that are under common control by the Government of Malaysia (a party that has direct or indirect significant influence on the Group) as at the reporting period as follows: Net balance Net balance outstanding outstanding RM 000 RM 000 Petroliam Nasional Berhad 41,768 26,555 Petronas Dagangan Berhad 9,396 TNB Fuel Services Sdn. Bhd. 280, ,853 Tenaga Nasional Berhad 3,866 3, , , Accrued expenses As at 31 December 2012, included in accrued expenses of the Group were interest expense payable of RM276,341,000 (31 December 2011: RM228,949,000) and provision for CESS fund of RM30,398,000 (31 December 2011: RM30,870,000) Amount due to subsidiaries The amounts due to subsidiaries are unsecured, interest free and repayable on demand. 19. Derivative financial liabilities 31 December Group RM 000 RM 000 Liabilities Derivatives used for hedging Interest rate swap 17,501 Cross currency swap 145, ,750 Interest rate swap ( IRS ) and cross currency swap ( CCS ) are used to achieve an appropriate mix of fixed and floating interest rate exposure within the Group s policy. In the current year, the Group entered into two interest rate swaps (Junior and Senior) and a cross currency swaps, to hedge the interest rate risk and foreign exchange risk in relation to the floating interest rates of underlying amortising floating-rate loan facility (i.e. RM Junior Tranche Loan, RM Senior Tranche Loan and USD Loan). The notional amount of the various swaps start with RM96,953,206 and thereafter as per schedule for Junior IRS, RM44,273,673 and thereafter as per schedule for Senior IRS and USD33,752,607 and thereafter as per schedule for CCS. The interest rate swaps and cross currency swaps were entered into for a period of 5 years for Junior IRS, 12 years for Senior IRS, and 15 years for CCS, and had a fixed swap rate of 5.15% for Junior IRS, 5.80% for Senior IRS and 5.80% for CCS. 143 Malakoff Corporation Berhad

146 Notes to the consolidated financial statements (continued) 20. Revenue group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Electricity generation and distribution 5,452,073 5,546,705 Rental income from estate 5,206 7,305 5,206 7,305 7,421 5,941 Operation and maintenance fees 130, ,768 Dividends from subsidiaries 659, , , ,053 Management fees from subsidiaries 27,060 27,060 27,060 27,060 5,587,608 5,691, , , , , Profit for the year group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Profit for the year is arrived at after charging: Amortisation of intangible assets 440, ,850 Amortisation of prepaid lease payments 4,343 4,344 Amortisation of transaction costs of hedging instruments 7,327 Auditors remuneration: Audit fees KPMG Malaysia Non-audit fees KPMG Malaysia 1, , Affiliates of KPMG Malaysia 1, Contribution and Corporate Social Responsibility activities 55,000 5,000 Contribution to retirement benefit plan 1,424 2, Depreciation of property, plant and equipment 485, ,546 2,790 2,341 2,410 2, Malakoff Corporation Berhad

147 21. Profit for the year (continued) group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Profit for the period is arrived at after charging (continued): Impairment loss: Intangible assets 44,123 Trade receivables 16,105 4,712 Finance costs 797,279 1,015, , , , ,440 Loss on disposal of a leasehold land 135 Personnel expenses (including key management personnel): Contribution to Employees Provident Fund 14,359 11,864 3,888 3,057 3,075 2,548 Expenses related to retirement benefit plans 5,944 8,432 1,745 3,558 2,016 (1,337) Wages, salaries and others 107,498 74,890 31,384 25,438 26,314 30,323 Property, plant and equipment written off 1,774 2,699 and after crediting: Dividend income from subsidiaries 659, , , ,053 Inter-company management fees 27,060 27,060 27,060 27,060 Interest income 159,380 40, , , , ,035 Gain on disposal of investment in a subsidiary 26,700 Reversal of impairment loss on trade receivables 10,307 60, Malakoff Corporation Berhad

148 Notes to the consolidated financial statements (continued) 22. Other comprehensive income 31 December Group RM 000 RM 000 Items that may be reclassified subsequently to profit or loss Cash flow hedge Loss arising during the year (5,107) 23. Key management personnel compensation The key management personnel compensations are as follows: group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Directors Fees Meeting allowances Remuneration 2,762 1,823 Other allowances Other short term employee benefits Retention/ex-gratia 304 3,547 Total short term employee benefits ,576 6,126 Other key management personnel: Short term employee benefits 8,439 3,691 Retention/ex-gratia 1, ,015 11,704 Other key management personnel comprise persons other than the Directors of Group entities, having authority and responsibility for planning, directing and controlling the activities of the Group entities either directly or indirectly. 146 Malakoff Corporation Berhad

149 24. Income tax expense Recognised in profit or loss group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Total income tax expense 158,974 79,107 30,868 50,343 51,887 61,526 Major components of income tax expense include: Current tax expense Malaysian current year 161, ,980 30,610 46,878 58,819 61,416 Under/(Over) provision in prior years 18, (787) 3,465 (1,601) , ,404 29,823 50,343 57,218 61,526 Deferred tax expense Origination and reversal of temporary differences (35,609) (6,768) 1,045 (5,331) Under/(Over) provision in prior year 13,744 (46,529) (21,865) (53,297) 1,045 (5,331) Total income tax expense 158,974 79,107 30,868 50,343 51,887 61,526 Reconciliation of tax expense Profit for the year 548, , , , , ,461 Total income tax expense 158,974 79,107 30,868 50,343 51,887 61,526 Profit excluding tax 707, , , , , ,987 Tax at Malaysian tax rate of 25% 176, ,524 90,630 62,107 50,375 48,747 Effect of share of results of associates (26,152) (49,520) Tax paid arising from previous unrecognised temporary difference (38,412) Non-taxable income (4,268) (164,763) (145,551) (66,685) Non-deductible expenses 134, , , ,322 69,798 12,669 Tax incentives (120,000) (120,000) Under/(Over) provision in prior years current tax 18, (787) 3,465 (1,601) 110 deferred tax 13,744 (46,529) Total income tax expense 158,974 79,107 30,868 50,343 51,887 61, Malakoff Corporation Berhad

150 Notes to the consolidated financial statements (continued) 25. Dividends Dividends recognised by the Company are as follows: Sen per share Total Date of (net of tax) amount payment RM Final 2011 ordinary , Interim 2012 ordinary , Interim 2012 preference , Total amount 184, Final 2010 ordinary , Interim 2011 ordinary , Interim 2011 preference , Total amount 179, Final 2009 ordinary , Final 2009 preference , Interim 2010 ordinary , Interim 2010 preference , Total amount 174, Final 2008 ordinary , Final 2008 ordinary , Total amount 85,000 The Directors do not recommend any final dividend for the financial year ended 31 December Operating segments In previous years, the Group had two reportable segments, which were Asset Management and Operations and Maintenance. The Group s Chief Executive Officer (the chief operating decision maker) has reassessed the nature of the Group s products, services and business strategies and decided that segmental reporting is not separately presented as the Group is principally engaged in power industry namely managing, operating and maintaining the power plants, which are substantially within a single business segment. The Company operates primarily in Malaysia (except for investment in overseas associates and a jointly controlled entity). Had the previous segmental reporting been adjusted for this change, all previous reporting would have been disclosed under one segment i.e managing, operating and maintaining power plants. Accordingly, no segmental information is considered necessary for analysis by industry segments or by geographic segments for this and subsequent period. 148 Malakoff Corporation Berhad

151 27. Financial instruments 27.1 Categories of financial instruments The table below provides an analysis of financial instruments categorised as follows: (a) (b) (c) Loans and receivables (L&R); Other financial liabilities measured at amortised cost (OL); and Fair value through profit or loss (FVTPL) Designated upon initial recognition (DUIR) carrying L&R/ FVTPL- Group amount (OL) DUIR RM 000 RM 000 RM December 2012 Financial assets Trade and other receivables* 1,455,233 1,455,233 Cash and cash equivalents 5,153,970 5,153,970 6,609,203 6,609,203 Financial liabilities Loans and borrowings (15,263,158) (15,263,158) Trade and other payables (1,435,326) (1,435,326) Derivative financial liabilities (162,750) (162,750) 31 December 2011 (16,861,234) (16,698,484) (162,750) Financial assets Trade and other receivables* 1,411,464 1,411,464 Cash and cash equivalents 3,102,094 3,102,094 4,513,558 4,513,558 Financial liabilities Loan and borrowings (12,257,874) (12,257,874) Trade and other payables (948,010) (948,010) * Excludes non-financial instruments (13,205,884) (13,205,884) 149 Malakoff Corporation Berhad

152 Notes to the consolidated financial statements (continued) 27. Financial instruments (continued) 27.1 Categories of financial instruments (continued) carrying L&R/ Company amount (OL) RM 000 RM December 2012 Financial assets Other investments 1,027,419 1,027,419 Trade and other receivables* 1,175,555 1,175,555 Cash and cash equivalents 381, ,076 2,584,050 2,584,050 Financial liabilities Loans and borrowings (7,141,439) (7,141,439) Trade and other payables (303,209) (303,209) (7,444,648) (7,444,648) 31 December 2011 Financial assets Other investments 1,130,594 1,130,594 Trade and other receivables* 839, ,724 Cash and cash equivalents 860, ,857 2,831,175 2,831,175 Financial liabilities Loan and borrowings (7,448,124) (7,448,124) Trade and other payables (399,337) (399,337) (7,847,461) (7,847,461) 31 December 2010 Financial assets Other investments 1,364,654 1,364,654 Trade and other receivables* 803, ,185 Cash and cash equivalents 657, ,974 2,825,813 2,825,813 Financial liabilities Loans and borrowings (7,501,340) (7,501,340) Trade and other payables (480,220) (480,220) (7,981,560) (7,981,560) 150 Malakoff Corporation Berhad

153 27. Financial instruments (continued) 27.1 Categories of financial instruments (continued) carrying L&R/ Company amount (OL) RM 000 RM December 2009 Financial assets Other investments 1,411,495 1,411,495 Trade and other receivables* 753, ,696 Cash and cash equivalents 697, ,005 2,862,196 2,862,196 Financial liabilities Loan and borrowings (7,543,583) (7,543,583) Trade and other payables (484,793) (484,793) (8,028,376) (8,028,376) 1 January 2009 Financial assets Other investments 1,665,471 1,665,471 Trade and other receivables* 702, ,371 Cash and cash equivalents 488, ,115 2,855,957 2,855,957 Financial liabilities Loan and borrowings (7,493,542) (7,493,542) Trade and other payables (494,945) (494,945) (7,988,487) (7,988,487) *Excludes non-financial instruments 151 Malakoff Corporation Berhad

154 Notes to the consolidated financial statements (continued) 27. Financial instruments (continued) 27.2 Net gains and losses from financial instruments Group RM 000 RM 000 Loans and receivables 159,380 40,894 Other financial liabilities measured at amortised cost (797,279) (1,015,214) Fair value through profit or loss Designated upon initial recognition 912 (638,987) (974,320) Company RM 000 RM 000 RM 000 RM 000 Loans and receivables 220, , , ,035 Other financial liabilities measured at amortised cost (461,423) (573,975) (634,707) (582,440) (241,147) (449,719) (368,187) (274,405) 27.3 Financial risk management The Group has exposure to the following risks from its use of financial instruments: Credit risk Liquidity risk Market risk 27.4 Credit risk Credit risk is the risk of a financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group s exposure to credit risk arises principally from its receivables from customers and investment debt securities. The Company s exposure to credit risk arises principally from loans and advances to subsidiaries and financial guarantees given. Receivables Risk management objectives, policies and processes for managing the risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Normally financial guarantees of banks, shareholders or directors of customers are obtained, and credit evaluations are performed on customers requiring credit over a certain amount. 152 Malakoff Corporation Berhad

155 27. Financial instruments (continued) 27.4 Credit risk (continued) Exposure to credit risk, credit quality and collateral As at the end of the reporting period, the maximum exposure to credit risk arising from receivables is represented by the carrying amounts in the statements of financial position. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on significant customers requiring credit over a certain amount. The Group and the Company does not require collateral in respect of financial assets. Investments are allowed only in liquid securities and only with counterparties that have a credit rating equal to or better than the Group and the Company. Given their high credit ratings management does not expect any counterparty to fail to meet their obligations. At the end of the reporting period, the Group has a concentration of credit risk in the form of trade debts due from Tenaga Nasional Berhad (TNB), representing approximately 66% (2011: 70%) of the total receivables of the Group. The maximum exposures to credit risk for the Group and the Company are represented by the carrying amount of each financial asset. Impairment losses The ageing of trade receivables as at the end of the reporting period was: 2012 Group Gross Impairment Net RM 000 RM 000 RM 000 Not past due 472, ,781 Past due 0 30 days 428, ,582 Past due days 20,556 (14,473) 6,083 Past due more than 120 days 119,967 (42,621) 77,346 1,041,886 (57,094) 984, Malakoff Corporation Berhad

156 Notes to the consolidated financial statements (continued) 27. Financial instruments (continued) 27.4 Credit risk (continued) 2011 Group gross Impairment Net RM 000 RM 000 RM 000 Not past due 478, ,205 Past due 0 30 days 503, ,988 Past due days 3,369 (2,913) 456 Past due more than 120 days 107,190 (53,537) 53,653 1,092,752 (56,450) 1,036,302 The movements in the allowance for impairment loss on trade receivables during the financial year were: RM 000 RM 000 At beginning of the year 56, ,632 Impairment loss recognised 16,105 4,712 Impairment loss reversed (10,307) (60,595) Impairment loss written off (5,154) (299) At end of the year 57,094 56,450 The allowance account in respect of trade receivables is used to record impairment losses. Unless the Group is satisfied that recovery of the amount is probable, the amount considered irrecoverable is written off against the receivable directly Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group s exposure to liquidity risk arises principally from its various payables, loans and borrowings. The Group maintains a level of cash and cash equivalents deemed adequate by the management to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they fall due. 154 Malakoff Corporation Berhad

157 27. Financial instruments (continued) 27.5 Liquidity risk (continued) Maturity analysis The table below summarises the maturity profile of the Group s and the Company s financial liabilities as at the end of the reporting period based on undiscounted contractual payments: contractual More carrying interest Contractual Under than Group amount rate cash flows 1 year 1 2 years 2 5 years 5 years RM 000 % RM 000 RM 000 RM 000 RM 000 RM December 2012 Financial liabilities Secured ABBA bonds 250, , , ,400 Al-Istisna bonds 256, ,883 84,310 78, ,895 Sukuk Ijarah medium term notes 3,658, ,587, , , ,617 5,424,452 Sukuk medium term notes 5,341, ,476,195 1,029, ,592 2,714,054 2,744,125 Senior Sukuk Murabahah 3,290, ,312, , , ,630 5,274,043 USD term loan 275,247 Libor + 312,171 16,534 16, ,103 margin 2.5% Unsecured Junior EBL term loan 330,103 Klibor + 380,513 15,515 15, ,483 margin 1.5% Subordinated loan notes 61, ,563 41,251 33,744 71,568 Unrated Junior Sukuk Musharakah 1,800, ,717, , , ,117 5,987,293 Trade and other payables 1,435,326 1,435,326 1,435,326 16,698,484 29,954,109 3,423,439 1,779,290 5,321,467 19,429, Malakoff Corporation Berhad

158 Notes to the consolidated financial statements (continued) 27. Financial instruments (continued) 27.5 Liquidity risk (continued) Maturity analysis (continued) The table below summarises the maturity profile of the Group s and the Company s financial liabilities as at the end of the reporting period based on undiscounted contractual payments: contractual More carrying interest Contractual Under than Group amount rate cash flows 1 year 1 2 years 2 5 years 5 years RM 000 % RM 000 RM 000 RM 000 RM 000 RM December 2011 Financial liabilities Secured Commercial papers 398, , ,000 Sukuk Ijarah bonds 269, , ,358 ABBA bonds 370, , , , ,400 Al-Istisna bonds 320, ,713 89,830 84, ,573 Istisna medium term notes 3,730, ,843, , ,665 2,077,225 1,031,750 Sukuk medium term notes 5,300, ,825, ,720 1,029,424 2,841,486 3,605,285 Unsecured Junior Sukuk 1,749, ,116, , , ,838 9,351,015 Subordinated loan notes 120, ,979 36,417 41,251 59,102 46,209 Trade and other payables 948, , ,010 13,205,884 25,419,408 3,292,875 2,293,650 5,798,624 14,034, Malakoff Corporation Berhad

159 27. Financial instruments (continued) 27.5 Liquidity risk (continued) Maturity analysis (continued) The table below summarises the maturity profile of the Group s and the Company s financial liabilities as at the end of the reporting period based on undiscounted contractual payments: contractual More carrying interest Contractual Under than Company amount rate cash flows 1 year 1 2 years 2 5 years 5 years RM 000 % RM 000 RM 000 RM 000 RM 000 RM December 2012 Financial liabilities Secured Sukuk medium term notes 5,341, ,476,195 1,029, ,592 2,714,054 2,744,125 Unsecured Unrated Junior Sukuk Musharakah 1,800, ,717, , , ,117 5,987,293 Other payables and accruals 303, , ,209 7,444,648 14,496,614 1,446,033 1,101,992 3,217,171 8,731, December 2011 Financial liabilities Secured Commercial papers 398, , ,000 Sukuk medium term notes 5,300, ,825, ,720 1,029,424 2,841,486 3,605,285 Unsecured Junior Sukuk 1,749, ,116, , , ,838 9,351,015 Other payables and accruals 399, , ,337 7,847,461 18,742,105 1,302,057 1,182,424 3,301,324 12,956, Malakoff Corporation Berhad

160 Notes to the consolidated financial statements (continued) 27. Financial instruments (continued) 27.5 Liquidity risk (continued) Maturity analysis (continued) The table below summarises the maturity profile of the Group s and the Company s financial liabilities as at the end of the reporting period based on undiscounted contractual payments: contractual More carrying interest Contractual Under than Company amount rate cash flows 1 year 1 2 years 2 5 years 5 years RM 000 % RM 000 RM 000 RM 000 RM 000 RM December 2010 Financial liabilities Secured Commercial papers 494, , ,000 Sukuk medium term notes 5,258, ,177, , ,720 3,665,076 3,811,118 Unsecured Junior Sukuk 1,749, ,270, , , ,000 9,504,853 Other payables and accruals 480, , ,220 7,981,560 19,428,461 1,485, ,720 4,124,076 13,315, December 2009 Financial liabilities Secured Commercial papers 594, , ,000 Sukuk medium term notes 5,249, ,526, , ,636 2,367,736 5,458,179 Unsecured Junior Sukuk 1,700, ,423, , , ,000 9,657,853 Other payables and accruals 484, , ,793 8,028,376 20,034,378 1,586, ,474 2,826,736 15,116, Malakoff Corporation Berhad

161 27. Financial instruments (continued) 27.5 Liquidity risk (continued) Maturity analysis (continued) The table below summarises the maturity profile of the Group s and the Company s financial liabilities as at the end of the reporting period based on undiscounted contractual payments: contractual More carrying interest Contractual Under than Company amount rate cash flows 1 year 1 2 years 2 5 years 5 years RM 000 % RM 000 RM 000 RM 000 RM 000 RM January 2009 Financial liabilities Secured Commercial papers 591, , ,000 Sukuk medium term notes 5,202, ,876, , ,762 1,730,780 6,446,771 Unsecured Junior Sukuk 1,700, ,576, , , ,839 9,810,852 Other payables and accruals 494, , ,945 7,988,487 20,547,250 1,597, ,343 2,190,619 16,257, Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and other prices will affect the Group s financial position or cash flows Currency risk The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities. The currencies giving rise to this risk are primarily Swiss Franc (CHF), Kuwait Dinar (KWD), Euro (EUR) and US Dollar (USD). 159 Malakoff Corporation Berhad

162 Notes to the consolidated financial statements (continued) 27. Financial instruments (continued) 27.6 Market risk (continued) Currency risk (continued) Exposure to foreign currency risk The Group s exposure to foreign currency (a currency which is other than the currency of the Group entities) risk, based on carrying amounts as at the end of the reporting period was: chf KWD eur usd RM 000 RM 000 RM 000 RM December 2012 Deposit with licence banks 11,298 36,329 Loans and borrowings 275,247 Trade and other receivables 585 Trade and other payables ,516 40,003 Net exposure ,298 26, , December 2011 Deposits with a licence bank 9,277 Net exposure 9,277 Currency risk sensitivity analysis Foreign currency risk arises from Group entities which have a functional currency other than Ringgit Malaysia. The exposure to currency risk of Group entities which do not have a Ringgit Malaysia functional currency is not material and hence, sensitivity analysis is not presented Interest rate risk The Group s fixed rate borrowings are exposed to a risk of change in their fair value due to changes in interest rates. The Group s variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. Short term receivables and payables are not significantly exposed to interest rate risk. Risk management objectives, policies and processes for managing the risk In managing interest rate risk, the Group maintains a balanced portfolio consisting mainly fixed instruments. All interest rate exposures are monitored and managed proactively by the Group s management. 160 Malakoff Corporation Berhad

163 27. Financial instruments (continued) 27.6 Market risk (continued) Interest rate risk (continued) Exposure to interest rate risk The interest rate profile of the Group s and the Company s interest-bearing financial instruments based on carrying amounts at the end of the reporting period was: 31 December Group RM 000 RM 000 Fixed rate instruments Financial assets 5,066,330 3,050,420 Financial liabilities 14,657,808 12,257,874 Floating rate instruments Financial liabilities 605, December 1 January Company RM 000 RM 000 RM 000 RM 000 RM 000 Fixed rate instruments Financial assets 377, , , , ,590 Financial liabilities 7,141,439 7,448,124 7,501,340 7,543,583 7,493,542 Most of the Group s financial assets and liabilities are fixed rate instruments measured at amortised cost, hence possible changes in interest rates are not expected to have a material impact on the Group s profit or loss. The change in floating rate of the financial liabilities is hedged via derivatives (refer to ). 161 Malakoff Corporation Berhad

164 Notes to the consolidated financial statements (continued) 27. Financial instruments (continued) 27.7 Hedging activities Cash flow hedge The Group has entered into various interest rate swaps and cross currency swaps in order to hedge the interest rate risk and foreign exchange risk in relation to the variability in cash flows on the floating rate RM and USD loans of RM967,604,587 (75% of Junior Tranche Loan), RM525,000,000 (75% of Senior Tranche Loan) and USD400,000,000 (100% of USD Loan). The interest rate swaps and cross currency swaps have different nominal values and are settled as per schedule, consistent with the interest repayment schedule of the loans. The following table indicates the periods in which the cash flows associated with the interest rate swap are expected to occur and affect profit or loss: carrying Expected Under More than Group amount cash flows 1 year 1-2 years 2-5 years 5 years RM 000 RM 000 RM 000 RM 000 RM 000 RM Interest rate swap 17,501 18,806 1,957 4,870 12,547 (568) Cross currency swap 145, ,862 21, , , , ,668 1,957 26, , ,358 During the financial year, a loss of RM5,107,000 was recognised in other comprehensive income. Ineffectiveness gain amounting to RM912,331 was recognised in profit or loss during the financial year in respect of the hedge. Sensitivity analysis Fair value sensitivity analysis A change of 10% strengthening/weakening of the interest rates at the end of the reporting period would have increased (decreased) equity by the amount shown below: Equity 10% 10% strengthening weakening of USD of USD RM 000 RM December 2012 Cross currency swap 22,994 (22,994) Fair value sensitivity (net) 22,994 (22,994) 162 Malakoff Corporation Berhad

165 27. Financial instruments (continued) 27.7 Hedging activities (continued) Cash flow hedge (continued) Sensitivity analysis (continued) Cash flow sensitivity analysis A change of 100 basis points ( bp ) in interest rates at the end of the reporting period would have increased (decreased) equity by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remained constant. Equity 100 bps 100 bps increases decreases RM 000 RM December 2012 Interest rate swap 57,842 (57,842) Cross currency swap 100,772 (100,772) Cash flow sensitivity (net) 158,614 (158,614) 27.8 Fair value of financial instruments The carrying amounts of cash and cash equivalents, short term receivables and payables and short term borrowings approximate fair values due to the relatively short term nature of these financial instruments. The fair values of other financial liabilities, together with the carrying amounts shown in the statements of financial position, are as follows: C carrying Fair Group amount value RM 000 RM December 2012 Financial liabilities Secured ABBA bonds 250, ,724 Al-Istisna bonds 256, ,995 Sukuk medium term notes 5,341,439 5,964,070 Sukuk Ijarah medium term notes 3,658,439 4,160,319 Senior Sukuk Murabahah 3,290,000 3,243,700 USD term loan 275, ,372 Derivative financial liabilities Interest rate swap 17,501 17,501 Cross currency swap 145, ,249 Unsecured Junior EBL term loan 330, ,960 Subordinated loan notes 61, ,563 Unrated Junior Sukuk Musharakah 1,800,000 1,878, Malakoff Corporation Berhad

166 Notes to the consolidated financial statements (continued) 27. Financial instruments (continued) 27.8 Fair value of financial instruments (continued) C carrying Fair Group amount value RM 000 RM December 2011 Financial liabilities Secured Commercial papers 398, ,000 Sukuk Ijarah bonds 269, ,782 ABBA bonds 370, ,854 Al-Istisna bonds 320, ,987 Istisna medium term notes 3,730,000 4,140,248 Sukuk medium term notes 5,300,173 5,853,890 Unsecured Junior Sukuk 1,749,111 1,840,250 Subordinated loan notes 120, ,979 C carrying Fair Company amount value RM 000 RM December 2012 Financial liabilities Secured Sukuk medium term notes 5,341,439 5,964,070 Unsecured Unrated Junior Sukuk Musharakah 1,800,000 1,878, Malakoff Corporation Berhad

167 27. Financial instruments (continued) 27.8 Fair value of financial instruments (continued) C carrying Fair Company amount value RM 000 RM December 2011 Financial liabilities Secured Commercial papers 398, ,000 Sukuk medium term notes 5,300,173 5,853,890 Unsecured Junior Sukuk 1,749,111 1,840, December 2010 Financial liabilities Secured Commercial papers 494, ,000 Sukuk medium term notes 5,258,089 5,752,040 Unsecured Junior Sukuk 1,749,111 1,799, December 2009 Financial liabilities Secured Commercial papers 594, ,922 Sukuk medium term notes 5,249,384 5,637,800 Unsecured Junior Sukuk 1,700,000 1,799,110 1 January 2009 Financial liabilities Secured Commercial papers 591, ,603 Sukuk medium term notes 5,202,250 5,556,320 Unsecured Junior Sukuk 1,700,000 1,777, Malakoff Corporation Berhad

168 Notes to the consolidated financial statements (continued) 27. Financial instruments (continued) 27.8 Fair value of financial instruments (continued) Fair value of the long term borrowings is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the end of the reporting period Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level 1 Level 2 Level 3 Total RM 000 RM 000 RM 000 RM Financial liabilities Interest rate swap used for hedging 17,501 17,501 Cross currency swap used for hedging 145, , , , Malakoff Corporation Berhad

169 28. Capital management The Group s objectives when managing capital is to maintain a strong capital base and to safeguard the Group s ability to continue as a going concern, so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Directors monitor and are determined to maintain an optimal debt-to-equity ratio that complies with debt covenants Sukuk Ijarah bonds issued by Segari Energy Ventures Sdn. Bhd. ( SEV ) In 2011, SEV s strategy was to maintain a debt-to-equity ratio of not more than 4:1 and a finance service cover ratio of at least 1.15 times. The following shows the debt-to-equity ratio and finance service cover ratio at the end of the financial year: (i) Debt-to-equity ratio 2011 RM 000 Sukuk Ijarah 269,051 Deemed total debts of SEV [A] 269,051 Redeemable Unsecured Loan Stocks 21,813 SEV s share capital 4,001 SEV s retained profits 2,179,011 SEV s advances to shareholders (139,390) Deemed total equity of SEV [B] 2,065,435 Debt-to-equity ratio [A:B] 0.13:1 (ii) Finance service cover ratio 2011 RM 000 Total net cash available of SEV [A] 989,976 SEV s interest payable [B] 277,358 Finance service cover ratio [A:B] 3.57:1 The Sukuk Ijarah bonds issued by SEV has been fully redeemed during the financial year. 167 Malakoff Corporation Berhad

170 Notes to the consolidated financial statements (continued) 28. Capital management (continued) 28.2 ABBA bonds issued by GB3 Sdn. Bhd. ( GB3 ) gb3 s strategy was to maintain a debt-to-equity ratio of not more than 9:1 and a debt service cover ratio of at least 1.25 times. The following shows the debt-to-equity ratios and debt service cover ratios at the end of the financial years: (i) Debt-to-equity ratios RM 000 RM 000 ABBA bonds 250, ,000 Deemed total debts of GB3 [A] 250, ,000 Redeemable Unsecured Loan Stocks 78, ,400 GB3 s share capital 1,000 1,000 GB3 s retained profits 458, ,235 Deemed total equity of GB3 [B] 538, ,635 Debt-to-equity ratio [A:B] 0.46:1 0.79:1 (ii) Debt service cover ratios RM 000 RM 000 Total net cash available of GB3 [A] 311, ,613 GB3 s interest payable [B] 9,973 14,600 Debt service cover ratio [A:B] 31.28: :1 There were no changes in GB3 s approach to capital management during the financial year. 168 Malakoff Corporation Berhad

171 28. Capital management (continued) 28.3 Al-Istisna bonds issued by Prai Power Sdn. Bhd. ( PPSB ) PPSB s strategy was to maintain a debt-to-equity ratio of not more than 4:1 and an annual finance service ratio of at least 1.4 times. The following shows the debt-to-equity ratios and annual finance service ratios at the end of the financial years: (i) Debt-to-equity ratios RM 000 RM 000 Al-Istisna bonds 256, ,419 Deemed total debts of PPSB [A] 256, ,419 Redeemable Unsecured Loan Stocks 199, ,475 PPSB s share capital 1,000 1,000 PPSB s retained profits 238, ,730 Deemed total equity of PPSB [B] 438, ,205 Debt-to-equity ratios [A:B] 0.59:1 0.88:1 (ii) Annual finance service ratios RM 000 RM 000 Total net cash available of PPSB [A] 233, ,568 PPSB s principle and interest payable [B] 137, ,646 Annual finance service ratios [A:B] 1.70:1 1.75:1 There were no changes in PPSB s approach to capital management during the financial year. 169 Malakoff Corporation Berhad

172 Notes to the consolidated financial statements (continued) 28. Capital management (continued) 28.4 Istisna medium term notes issued by Tanjung Bin Power Sdn. Bhd. ( TBP ) In 2011, TBP s strategy was to maintain a debt-to-equity ratio of not more than 4:1 and a debt service cover ratio of at least 1.25 times. The following shows the debt-to-equity ratio and debt service cover ratio at the end of the financial year: (i) Debt-to-equity ratio 2011 RM 000 Istisna Medium Term Notes 3,730,000 Deemed total debts of TBP [A] 3,730,000 Redeemable Unsecured Loan Stocks 925,185 TBP s share capital 5,000 TBP s retained profits 715,067 Deemed total equity of TBP [B] 1,645,252 Debt-to-equity ratio [A:B] 2.27:1 (ii) Debt service cover ratio 2011 RM 000 Total net cash available of TBP [A] 1,362,768 TBP s interest payable [B] 353,420 Debt service cover ratio [A:B] 3.86:1 The Istisna medium term notes issued by TBP has been fully redeemed during the financial year. 170 Malakoff Corporation Berhad

173 28. Capital management (continued) 28.5 Sukuk Ijarah medium term notes issued by Tanjung Bin Power Sdn. Bhd. ( TBP ) TBP s strategy is to maintain a debt-to-equity ratio of not more than 80:20 and a finance service cover ratio of at least 1.25 times. The following shows the debt-to-equity ratio and finance service cover ratio at the end of the financial year: (i) Debt-to-equity ratio 2012 RM 000 Sukuk Ijarah medium term notes (Principal amount) 4,195,000 Deemed total debts of TBP [A] 4,195,000 Redeemable Unsecured Loan Stocks 810,705 TBP s share capital 5,000 TBP s retained profits 716,036 Deemed total equity of TBP [B] 1,531,741 Debt-to-equity ratio [A:B] 2.74:1 The finance service cover ratio is not applicable to the subsidiary as there is no distribution is made in any 12 months period between one principal payment date and the next principal date Senior Sukuk Murabahah issued by Tanjung Bin Energy Issuer Berhad ( TBEI ) TBEI s strategy is to maintain a debt-to-equity ratio of not more than 4:1 and a finance service cover ratio of at least 1.05 times. The first of such finance service cover ratio is to be computed for the first full calculation period ending after the commencement date of the power plants. The following shows the debt-to-equity ratio at the end of the financial year: (i) Debt-to-equity ratio 2012 RM 000 Senior Sukuk Murabahah (Drawdown amount) 1,337,510 Outstanding principal obligation [A] 1,337,510 TBEI s share capital 100 TBE s share capital 5,000 Shareholder loan TBEI 42,759 Junior RM Term Loan 330,103 Deemed total equity of TBEI [B] 377,962 Debt-to-equity ratio [A:B] 3.54:1 The first finance service cover ratio is not presented until the completion date of the project. 171 Malakoff Corporation Berhad

174 Notes to the consolidated financial statements (continued) 28. Capital management (continued) 28.7 The Company debt-to-equity ratios and the Group debt-to-equity ratios are applied to the following loans and borrowings: a) Sukuk medium term notes, Junior Sukuk and commercial papers issued by the Company b) USD term loan for Malakoff International Limited ( MIL ) c) Junior term loan for TBEI For the Sukuk medium term notes, Junior Sukuk and commercial papers issued by the Company, the Company s strategy remains unchanged from 2009, was to maintain a debt-to-equity ratio of not more than 1.25:1 and Group debt-to-equity ratio of not more than 7:1. The Company has settled the Junior Sukuk during the financial year via issuance of Unrated Junior Sukuk Musharakah. The terms of the covenant remains unchanged. For the USD term loan obtained by MIL, the Company is required to maintain its debt-to-equity ratio of not more than 1.25:1 and Group debt-to-equity ratio of not more than 7:1. For the Junior term loan obtained by TBEI, the Company is required to maintain its debt-to-equity ratio of not more than 1.25:1 and Group debt-to-equity ratio of not more than 7:1. The following shows the debt-to-equity ratios for the following years: (i) Company debt-to-equity ratios RM 000 RM 000 RM 000 RM 000 Commercial paper 398, , ,199 Sukuk medium term notes 5,341,439 5,300,173 5,258,089 5,249,384 Contingencies 270, , , ,196 Deemed total debts [A] 5,612,274 6,019,712 6,053,953 6,144,779 Ordinary share capital 351, , , ,344 Redeemable convertible non-cumulative preference shares 4,179 4,179 4,179 4,179 Share premium 3,575,837 3,575,837 3,575,837 3,575,837 Capital redemption reserve Retained profits 381, , , ,386 Junior Sukuk 1,749,111 1,749,111 1,700,000 Unrated Junior Sukuk Musharakah 1,800,000 Deemed total equity [B] 6,113,566 5,915,397 5,896,310 5,871,586 Debt-to-equity ratios [A:B] 0.92:1 1.02:1 1.03:1 1.05:1 172 Malakoff Corporation Berhad

175 28. Capital management (continued) 28.7 The Company debt-to-equity ratios and the Group debt-to-equity ratios are applied to the following loans and borrowings: a) Sukuk medium term notes, Junior Sukuk and commercial papers issued by the Company b) USD term loan for Malakoff International Limited ( MIL ) c) Junior term loan for TBEI (continued) (ii) Group debt-to-equity ratios RM 000 RM 000 Commercial papers 398,840 Sukuk medium term notes 5,341,439 5,300,173 Al-Bai Bithaman Ajil bond 250, ,000 Sukuk Ijarah bonds 269,051 Al-Istisna bonds 256, ,420 Istisna medium term notes 3,730,000 Sukuk Ijarah medium term notes 3,658,439 Junior EBL term loan 330,103 Senior Sukuk Murabahah (Drawdown amount) 1,337,510 Senior Sukuk Murabahah (Unutilised amount) 1,952,490 USD Term Loan 275,247 Contingencies 440, ,034 Deemed total debts [A] 13,842,539 11,169,158 Ordinary share capital 351, ,344 Redeemable convertible non-cumulative preference shares 4,179 4,179 Share premium 3,575,837 3,575,837 Capital redemption reserve Reserve 652 Subordinated loan notes 61, ,279 Accumulated losses (95,949) (379,791) Junior Sukuk 1,749,111 Unrated Junior Sukuk Musharakah 1,800,000 Deemed total equity [B] 5,697,963 5,421,799 Debt-to-equity ratios [A:B] 2.43:1 2.06:1 173 Malakoff Corporation Berhad

176 Notes to the consolidated financial statements (continued) 29. Capital commitments group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Plant and equipment Authorised and contracted for 4,592,430 4,661,873 Authorised but not contracted for 304, ,659 5,749 17,435 2,166 2,964 4,896,441 4,865,532 5,749 17,435 2,166 2, Contingencies group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Guarantees secured 440, , , , , ,196 These guarantees mainly consist of guarantees for bid bonds, performance bonds and security deposits for projects. 31. Related parties For the purposes of these financial statements, parties are considered to be related to the Group or the Company if the Group or the Company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group or the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. Related parties also include key management personnel defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group or the Company either directly or indirectly. The key management personnel include all the Directors of the Group, and certain members of senior management of the Group. The Group has related party relationship with its holding companies, significant investors, subsidiaries and associates, Directors and key management personnel. Related party transactions have been entered into the normal course of business under normal trade terms. 174 Malakoff Corporation Berhad

177 31. Related parties (continued) The significant related party transactions of the Group and of the Company are as follows: Significant related party transactions group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 i. An associate: Interest income on unsecured subordinated loan notes 59,922 (63,609) 59,922 (63,609) 64,841 66,883 ii. iii. iv. Subsidiaries Interest income on unsecured subordinated loan notes 140, , , ,154 Management fees 27,060 27,060 27,060 27,060 Dividends 659, , , ,053 An entity that is under common control by a party that controls the Group and the Company: Hicom Power Sdn. Bhd.: Operation and maintenance subcontract fee income 109, ,600 Operation and maintenance subcontract fee expense (277,947) (306,990) Entities that are under common control by the Government of Malaysia (a party that has direct or indirect significant influence on the Group and the Company): Tenaga Nasional Berhad: Sales of capacity and energy 5,665,095 5,779,100 Purchase of electricity bulk supply (47,232) (42,301) 175 Malakoff Corporation Berhad

178 Notes to the consolidated financial statements (continued) 31. Related parties (continued) The significant related party transactions of the Group and of the Company are as follows (continued): Significant related party transactions (continued) group company RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 iv. Entities that are under common control by the Government of Malaysia (a party that has direct or indirect significant influence on the Group and the Company) (continued): Petroliam Nasional Berhad: Purchase of gas (398,263) (373,744) Petronas Dagangan Berhad: Purchase of diesel (75,431) (194,963) TNB Fuel Services Sdn. Bhd.: Purchase of coal (2,045,174) (2,108,114) Financial institutions and other corporations: Interest income 61,917 31,166 15,027 12,545 6,172 1,378 Interest expense (16,570) (16,570) Energy Commission: CESS fund contribution (29,486) (29,458) Malaysian Resources Corporation Berhad: Sales of centralised chilled water and electricity 29,654 22,259 Lembaga Tabung Haji: Interest expense (20,712) (20,712) 176 Malakoff Corporation Berhad

179 32. Significant events during the year 1. Litigation Action by Prai Power Sdn. Bhd. ( PPSB ) against GE Energy Parts Inc. ( GE Inc ), GE Power Systems (M) Sdn. Bhd. ( GE Power System ) and General Electric International, Inc. ( GEII ) (collectively referred to as GE ) On 3 November 2010, Prai Power Sdn. Bhd. ( PPSB ), a wholly-owned subsidiary of the Company, commenced 2 legal proceedings in the High Court against GE Energy Parts Inc ( GE Inc ), GE Power Systems (M) Sdn. Bhd. ( GE Power System ) and General Electric International, Inc. ( GEII ) (collectively referred to as GE ), for GE s breach of duty of care owed towards PPSB, in their capacity as the designers/manufacturers/suppliers of power plant equipment. In the first legal suit, PPSB claimed the sum of RM83,608,000, being the costs for the replacement of damaged rotor and the commercial losses arising from the reduction in capacity payments. In the second legal suit, PPSB claimed the sum of RM29,740,000 being the costs of the replacement of another damaged rotor and other consequential losses. A settlement and release agreement was entered into between PPSB, Natural Analysis Sdn. Bhd., the Company, and GE and General Electric Company on 12 December As a result of the said settlement and release agreement, the parties agreed to among others, immediately withdraw and discontinue the two legal proceedings in the High Court and arbitration proceedings of which the same were accordingly withdrawn and discontinued. 2. Arbitration Proceeding by Prai Power Sdn. Bhd. ( PPSB ), a wholly-owned subsidiary of Malakoff Corporation Berhad, against Sumitomo Corporation, Japan ( Sumitomo ) On 16 August 2011, Prai Power Sdn. Bhd. ( PPSB ), a wholly-owned subsidiary of the Company, had filed a Statement of Claim against Sumitomo Corporation, Japan ( Sumitomo ), for an arbitration proceeding for Sumitomo s breach of the duty of care it owed to PPSB under the Engineering, Procurement, Construction Contract ( EPC Contract ) entered into between PPSB and Sumitomo dated 12 October 2000, for supplying a rotor that was defective in design, manufacture and/or supply which rotor was found damaged on 11 September The total amount claimed by PPSB in its Statement of Claim is for the sum of approximately RM83,608,000. Negotiations took place and a Settlement Agreement was entered into between PPSB and Sumitomo on 7 June The arbitration was thereupon withdrawn when the Tribunal was informed of the settlement on 26 June The Company had on 9 October 2012 submitted a proposal to Securities Commission to undertaken an internal corporate reorganisation exercise, which entails the following proposals to be undertaken by the following subsidiaries of the Company: (i) (ii) Malakoff Power Berhad ( MPower ), a wholly-owned subsidiary of the Company proposed issuance of Islamic Commercial Papers ( ICP ) of up to RM300,000,000 in nominal value under an ICP Programme and Proposed Issuance of Islamic Medium Term Notes ( IMTN ) of up to RM5,600,000,000 in nominal value under an IMTN Facility under the Islamic principle of Murabahah. Tanjung Bin Power Sdn. Bhd. ( TBP ), a 90% owned subsidiary of the Company, proposed issuance of the following: a) Redeemable Convertible Unsecured Islamic Debt Securities of up to RM270,000,0000 in nominal value. b) Redeemable Convertible Unsecured Loan Stocks of up to RM30,000,000 in nominal value. (iii) Segari Energy Ventures Sdn. Bhd. ( SEV ), a 93.75% owned subsidiary of the Company, proposed issuance of the following: (a) (b) Redeemable Convertible Unsecured Islamic Debt Securities of up to RM1,687,500,000 in nominal value. Redeemable Convertible Unsecured Loan Stocks of up to RM112,500,000 in nominal value. 177 Malakoff Corporation Berhad

180 Notes to the consolidated financial statements (continued) 32. Significant events during the year (continued) (iv) TBP, GB3 Sdn. Bhd., a 75% owned subsidiary of the Company and Prai Power Sdn. Bhd., a wholly-owned subsidiary of the Company, proposed issuance of Redeemable Unsecured Murabahah Stocks ( RUMS ) of up to RM1,030,900,000 in nominal value in replacement of the existing conventional Redeemable Unsecured Loan Stocks owned by the Company and the sale of RUMS by the Company to MPower. The proposed internal corporate reorganisation exercise does not entail any acquisition of new companies or disposal of any existing companies within the group. Accordingly, the Company s effective interests in its subsidiaries and associates remain the same post-reorganisation. The internal corporate reorganisation exorcise was completed on 18 January Malakoff Power Berhad, a wholly-owned subsidiary of the Company had on 18 October 2012 acquired the entire issued and paid-up share capital of Tanjung Bin O&M Berhad (formerly known as Sterling Asia Berhad) comprising 2 ordinary shares of RM1 each for a nominal consideration of RM2. 5. Tanjung Bin O&M Berhad (formerly known as Sterling Asia Berhad), a wholly-owned subsidiary of the Company had on 18 October 2012 entered into a conditional asset sale agreement with HICOM Power Sdn. Bhd., a wholly-owned subsidiary of DRB-HICOM Berhad, to acquire its net assets for a cash consideration of RM575,000,00. The acquisition was completed on 17 December Subsequent events 1. on 18 January 2013, the Group has completed the internal corporate reorganisation exercise as disclosed in Note 32 to the financial statements. 2. on 19 January 2013, Muscat City Desalination Co. S.A.O.C. ( MCDC ), a closed joint stock company, was incorporated in the Sultanate of Oman by Malakoff International Limited ( MIL ), a wholly-owned subsidiary of the Company, Sumitomo Corporation of Japan ( Sumitomo Corporation ) and Cadagua S.A. of Spain ( Cadagua ) as a special purpose vehicle to undertake the development and construction of an independent water project with a net desalination capacity of 42 MIGD (equivalent to 191,000m 3 /day) situated at Al-Ghubrah in the City of Muscat, Sultanate of Oman. MIL and Sumitomo Corporation each holds a 45% interest in MCDC while Cadagua holds the remaining 10% interest in MCDC. The issued and paid up share capital of MCDC is OMR500,000, which is approximately RM4,029, on 22 January 2013, the Company has submitted to Bursa Securities the initial listing application in relation to the admission of the Company to the Official List and the listing of and quotation for the entire enlarged issued and paid-up ordinary share capital of the Company on the Main Market of Bursa Securities. 4. on 25 February 2013, the Group has executed the following agreements in connection with the conditional award received by Segari Energy Ventures Sdn. Bhd. ( SEV ) to undertake the extension of the operations of SEV s existing power plant: (i) (ii) A supplemental Power Purchase Agreement ( PPA ) to the current PPA ( Supplemental PPA ) with Tenaga Nasioanl Berhad ( TNB ) dated 16 October 1993 (as amended and supplemented) for the generation and sale of electricity and to make generating capacity available to TNB from SEV s 1,303 MW combined cycle power plant located at Lumut, Perak. The Supplemental PPA shall be effective from the date of the signing until the expiry of the existing PPA on 30 June 2017 with the commencement of the competitive tariffs beginning 1 March A new PPA with TNB ( New PPA ) for the extension of the term of the current PPA. The New PPA is for a term of ten (10) years and shall be effective from 1 July 2017 to 30 June Malakoff Corporation Berhad

181 34. Acquisition and disposal of subsidiaries Group a) Acquisition of subsidiaries on 10 May 2012, Malakoff International Limited ( MIL ), a wholly-owned subsidiary of the Company acquired 100% and 57.1% of the equity interest in Malakoff Hidd Holding Company Limited (formerly known as IP Middle East Holding Company Limited) ( MHHCL ) and Malakoff Summit Hidd Holding Company Limited (formerly known as IPSUM Hidd Holding Company Limited), respectively for a total cash consideration of RM347,563,000. Both the subsidiaries are principally engaged in investment holding activities. As a result of the acquisition, the Group has an effective equity interest of 39.97% on Hidd Power Company B.S.C. ( HPC ) and it became an associate of the Group. No revenue was contributed by the subsidiaries acquired during the year. From the acquisition date to 31 December 2012, the Group shared of profit of HPC amounting to RM20,357,000. If the acquisition had occurred on 1 January 2012, management estimates that the consolidated profit for the financial year would have been RM555,259,000. Intangible asset and goodwill arising from the acquisition amounting to RM81,103,000 and RM266,460,000, respectively which have been measured and accounted for using the Multi-Period Excess Earning Method under the income method as disclosed in Note 4 to the financial statements. The following summaries the recognised amounts of intangible asset and goodwill acquired at the acquisition date of the subsidiaries: Fair value Acquiree s recognised carrying on acquisition amount date RM 000 RM 000 Property, plant and equipment 3,082,618 3,082,618 Receivables 306, ,109 Inventories 47,140 47,140 Cash and cash equivalents 54,217 54,217 Bank borrowings (2,643,294) (2,643,294) Derivative financial instruments (611,695) (611,695) Deferred revenue (111,940) (111,940) Other liabilities (290,614) (290,614) Net liabilities (167,459) (167,459) Intangible asset arising from acquisition 370,369 Net intangible asset 202,910 Group share of intangible asset 81,103 Purchase consideration/cash outflow on acquisition (347,563) Goodwill 266,460 At the end of the reporting period, the goodwill arising on the acquisition of HPC during the financial year was translated at the year-end closing rate. Accordingly, the exchange difference of RM877,000 was recognized as part of the translation reserve in the consolidated statements of changes in equity. 179 Malakoff Corporation Berhad

182 Notes to the consolidated financial statements (continued) 34. Acquisition and disposal of subsidiaries (continued) b) Disposal of a subsidiary On 29 March 2012, a wholly-owned subsidiary of the Company, Malakoff International Limited ( MIL ) disposed off Malakoff Jordan Generation Limited ( MJGL ), a wholly-owned subsidiary of MIL to a third party for a consideration sum of RM74,568,000. As a result, Malakoff ceased to hold an indirect equity interest in Enara Energy Investment Company ( Enara ) and Central Electricity Generating Company Limited ( CEGCO ), associates of the Group. The disposal had the following effect on the financial position of the Group as follows: RM 000 Investment in a subsidiary * Investment in associates (47,868) Net assets (47,868) Total disposal proceeds, settled by cash 74,568 Gain on disposal recognised in statement of profit or loss and other comprehensive income 26,700 *Denotes RM2 35. Acquisition of assets and liabilities Group On 18 October 2012, Tanjung Bin O&M Berhad (formerly known as Sterling Asia Berhad), a wholly-owned subsidiary of the Company entered into a conditional asset sale agreement with Hicom Power Sdn. Bhd. ( HPSB ) for the acquisition of the rights, assets and liabilities of HPSB for a total cash consideration of RM575,000,000. The acquisition was completed on 17 December Intangible asset arising from the acquisition amounting to RM548,074,000 has been measured and accounted for using the Multi- Period Excess Earning Method under the income method as disclosed in Note 4 to the financial statements. 180 Malakoff Corporation Berhad

183 35. Acquisition of assets and liabilities (continued) The following summaries the recognised amounts of assets and liabilities acquired at the acquisition date: Fair value Acquiree s recognised carrying on acquisition amount date RM 000 RM 000 Property, plant and equipment Trade and other receivables 67,296 67,296 Cash and cash equivalents 38,335 38,335 Inventories Trade and other payables (79,485) (79,485) Net assets 26,926 26,926 Purchase consideration (575,000) Intangible asset (Note 4) 548,074 Net cash outflow arising from the acquisition Cash and cash equivalents acquired 38,335 Less: Total deposit paid as at acquisition date (115,000) Cash outflow on acquisition, net of cash and cash equivalents acquired (76,665) Acquisition-related costs The Group incurred acquisition-related cost of RM18 million related to stamp duty. The stamp duty has been included in other operating expenses in Group s consolidated statements of profit or loss and other comprehensive income. 36. Explanation of transition to MFRSs As stated in Note 1(a), these are the Company s first separate financial statements prepared in accordance with MFRSs. The accounting policies set out in Note 2 have been applied in preparing the Company s first separate financial statements for the year ended 31 December 2012 and the comparative information presented in these financial statements. MFRS 1 requires that a first-time adopter shall prepare and present an opening MFRS statement of financial position at the date of transition to MFRSs. The date of transition to MFRS is the beginning of the earliest period for which an entity presents full comparative information under MFRSs in its first MFRS financial statements. The Group has prepared its first MFRSs consolidated financial statements for the financial year ended 31 December 2011 in connection with the application of public offering of ordinary shares of the Company to its official listing on the Main Market of Bursa Malaysia Securities Berhad. In preparing the first MFRSs consolidated financial statements, the Group has applied MFRS 1, First-time Adoption of Malaysian Financial Reporting Standards and the consolidated financial statements for the financial year ended 31 December 2011 had included two (2) years of comparative information (i.e. 31 December 2009 and 2010) as part of the regulatory requirements. Accordingly, the date of transition in respect of the Group s first MFRSs consolidated financial statements for the financial year ended 31 December 2011 was 1 January Malakoff Corporation Berhad

184 Notes to the consolidated financial statements (continued) 36. Explanation of transition to MFRSs (continued) In this regard, the Company has voluntarily presented three (3) years of comparative information in its first MFRSs separate financial statements for the financial year ended 31 December 2012 in order to preserve the same date of transition to MFRSs as the Group. The comparative information presented in these separate financial statements included the Company s statement of financial position as at 31 December 2009, 2010 and 2011, statements of profit or loss and other comprehensive income and cash flows for the financial years ended 31 December 2009, 2010 and 2011 and the Company s opening MFRS statement of financial position as at 1 January 2009 (the Company s date of transition to MFRSs in its separate financial statements). In preparing the opening separate statement of financial position at 1 January 2009, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous FRSs. An explanation of how the transition from previous FRSs to MFRSs has affected the Company s separate statements of financial position, financial performance and cash flows is set out as follows: 36.1 Reconciliations of financial position effect of transition to MFRSs Company 1 January RM 000 Note FRSs 2009 MFRSs Non-current assets Property, plant and equipment 42,856 42,856 Investment in subsidiaries ,128,970 3,585 8,132,555 Investment in associates 1,006,800 1,006,800 Other investments ,669,056 (3,585) 1,665,471 Total non-current assets 10,847,682 10,847,682 Current assets Trade and other receivables , , ,855 Current tax assets 115, ,664 Cash and cash equivalents 488, ,115 Total current assets 1,226, ,994 1,378,634 Total assets 12,074, ,994 12,226,316 Equity Share capital 356, ,363 Share premium 3,658,997 3,658,997 Retained profits ,209 60, ,765 Total equity 4,146,569 60,556 4,207, Malakoff Corporation Berhad

185 36. Explanation of transition to MFRSs (continued) 36.1 Reconciliations of financial position (continued) effect of transition to MFRSs Company 1 January RM 000 Note FRSs 2009 MFRSs Non-current liabilities Loans and borrowings 6,902,250 6,902,250 Deferred tax liabilities ,185 20,185 Employee benefits 10,519 10,519 Total non-current liabilities 6,912,769 20,185 6,932,954 Current liabilities Loans and borrowings 591, ,292 Trade and other payables ,692 71, ,945 Total current liabilities 1,014,984 71,253 1,086,237 Total liabilities 7,927,753 91,438 8,019,191 Total equity and liabilities 12,074, ,994 12,226, Malakoff Corporation Berhad

186 Notes to the consolidated financial statements (continued) 36. Explanation of transition to MFRSs (continued) 36.1 Reconciliations of financial position (continued) effect of transition to MFRSs Company 31 December RM 000 Note FRSs 2009 MFRSs Non-current assets Property, plant and equipment 40,324 40,324 Investment in subsidiaries ,128,970 3,585 8,132,555 Investment in associates 998, ,800 Other investments ,415,080 (3,585) 1,411,495 Total non-current assets 10,583,174 10,583,174 Current assets Trade and other receivables , , ,962 Current tax assets 132, ,164 Cash and cash equivalents 697, ,005 Total current assets 1,495, ,994 1,647,131 Total assets 12,078, ,994 12,230,305 Equity Share capital 355, ,523 Share premium 3,575,837 3,575,837 Reserves Retained profits ,830 60, ,386 Total equity 4,111,030 60,556 4,171, Malakoff Corporation Berhad

187 36. Explanation of transition to MFRSs (continued) 36.1 Reconciliations of financial position (continued) effect of transition to MFRSs Company 31 December RM 000 Note FRSs 2009 MFRSs Non-current liabilities Loans and borrowings 6,949,384 6,949,384 Deferred tax liabilities ,185 20,185 Employee benefits 10,158 10,158 Total non-current liabilities 6,959,542 20,185 6,979,727 Current liabilities Loans and borrowings 594, ,199 Trade and other payables ,540 71, ,793 Total current liabilities 1,007,739 71,253 1,078,992 Total liabilities 7,967,281 91,438 8,058,719 Total equity and liabilities 12,078, ,994 12,230,305 The transition to MFRSs does not has any impact on the Company s statements of profit or loss and other comprehensive income and cash flows Notes to reconciliations Fair value adjustments under FRSs, the adoption of FRS 139 was effective on 1 January The Company had adopted the MFRSs framework with a transition date of 1 January Accordingly, the adjustment takes into consideration the retrospective effect of MFRS 139 from the annual period beginning on 1 January Malakoff Corporation Berhad

188 Statement by Directors pursuant to Section 169(15) of the Companies Act, 1965 In the opinion of the Directors, the financial statements set out on pages 078 to 185 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 31 December 2012 and of their financial performance and cash flows for the year then ended. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors:... Dato Wira Syed Abdul Jabbar bin Syed Hassan Chairman Datuk Hj Hasni bin Harun Director Kuala Lumpur, Date: 26 February 2013 Statutory declaration pursuant TO Section 169(16) of the Companies Act, 1965 I, Ho Chee Sheong, the officer primarily responsible for the financial management of Malakoff Corporation Berhad, do solemnly and sincerely declare that the financial statements set out on pages 078 to 185 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, Subscribed and solemnly declared by the above named in Kuala Lumpur on 26 February Ho Chee Sheong Before me: 186 Malakoff Corporation Berhad

189 Independent Auditors Report to the members of Malakoff Corporation Berhad (Company No V) (Incorporated in Malaysia) Report on the Financial Statements We have audited the financial statements of Malakoff Corporation Berhad, which comprise the statements of financial position as at 31 December 2012 of the Group and of the Company, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 078 to 185. Directors Responsibility for the Financial Statements The Directors of the Company are responsible for the preparation of financial statements that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards, and the Companies Act, 1965 in Malaysia, and for such internal control as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements have been properly drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 31 December 2012 and of their financial performance and cash flows for the year then ended. 187 Malakoff Corporation Berhad

190 Independent Auditors Report to the members of Malakoff Corporation Berhad (Company No V) (Incorporated in Malaysia) (continued) Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries have been properly kept in accordance with the provisions of the Act. b) we are satisfied that the accounts of the subsidiaries that have been consolidated with the Company s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes. c) our audit reports on the accounts of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act. Other Matters This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. KPMG Firm Number: AF 0758 Chartered Accountants Muhammad Azman Bin Che Ani Approval Number: 2922/04/14(J) chartered Accountant Petaling Jaya Date: 26 February Malakoff Corporation Berhad